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Recently, the 82-year-old He Xiangjian has once again become the focus of the industry.

The reason is that on July 23, the CSRC's IPO filing announcement disclosed that it plans to issue no more than 650,848,633 overseas listed common shares and list them on the Hong Kong Stock Exchange. This means that Midea Group is expected to become a home appliance company listed on both the A-share and Hong Kong stock markets, and is expected to become one of the largest IPOs on the Hong Kong stock market in recent years.

He Xiangjian, who was born in 1942, is 82 years old this year. Once Midea's Hong Kong stock is successfully listed, he will become the oldest actual controller of mainland enterprises listed on the Hong Kong stock market (He Xiangjian controls 30.87% of the shares through Midea Holdings). Judging from the prospectus of Midea Group last year, although He Xiangjian had retired to the second line in 2012, he is still the "backbone" of Midea Group. This Guangdong native with only primary school education has a strong power in the capital market.

Japanese people like to study Chinese history. Former Toshiba executives admired He Xiangjian so much that they called him "Liu Bei in a suit". Once listed on the Hong Kong Stock Exchange, Midea Group will be listed on both the Hong Kong and A-share markets. Where will He Xiangjian and Midea go in the future?

He Xiangjian is the backbone of Midea

In 1968, 26-year-old He Xiangjian and 23 villagers in the village raised 5,000 yuan to establish a production group for plastic bottle caps - "Beijiao Street Office Plastic Production Group". This was the predecessor of Midea Group. In the first ten years, it produced hardware products, trailer brake valves, rubber parts and other auto parts, and achieved good economic benefits. However, in He Xiangjian's view, the ten years of entrepreneurship from 1968 to 1977 were "just like a child, and nothing could be achieved".

In 1978, after the reform and opening up, He Xiangjian keenly captured the vast market opportunities of electric fans and decisively transformed to develop electric fans. In 1980, He Xiangjian independently developed and produced the first metal table fan. In 1981, He Xiangjian registered the "Midea" trademark, marking the entry of Midea into the home appliance manufacturing industry. Starting from the production of fans, after decades of development, Midea has grown from a small workshop to a white appliance giant.

Midea was one of the earliest companies to enter the capital market in China and the first listed company after the restructuring of Chinese township enterprises. In November 1993, Midea completed its shareholding reform and Midea Electric Appliances was listed on the Shenzhen Stock Exchange. Its main businesses include traditional white goods and motor and compressor parts. In 2013, Midea Group exchanged shares to merge all the shares of Midea Electric Appliances. In the same year, Midea Group was listed and its business scope continued to expand, transforming from a home appliance company to a comprehensive technology group.

After decades of establishment, the key to Midea's continuous development lies in He Xiangjian's management philosophy of "the only constant is change". This has a profound impact on Midea. Even though He Xiangjian chose to retreat behind the scenes at the age of 70 and handed over the leadership of Midea Group to professional manager Fang Hongbo, he is still the "backbone" behind Midea. As the largest shareholder of Midea, he maintains control over Midea Group. This time, Midea's re-IPO has also triggered speculation in the industry about whether he will come out again. Because this is the second time that Midea Group has submitted an application after its initial application failed in October last year, seeking a dual listing on the "A+H" market.

However, after the news of Midea's second IPO came out, the stock price of Midea Group reacted flatly in the capital market. On July 23 and 24, the stock price fell for two consecutive trading days. As of the close of July 31, the closing stock price of Midea Group was 63.76 yuan, up 4.42%. Entering 2024, the stock price of Midea Group still rose by 23.5%. At this time, the total market value of Midea Group reached 445.4 billion yuan, ranking first in the home appliance industry.

Annual revenue: 373.7 billion yuan

Midea Group, which has been established for more than 40 years (counting from the time when the Midea trademark was registered), has developed from a pure home appliance company to a comprehensive technology group that integrates home appliances, industrial technology, digitalization, chips and other businesses, becoming the domestic home appliance company with the highest revenue and market value.

In 2010, Midea Group's total revenue exceeded 100 billion yuan for the first time, reaching 110.3 billion yuan. In 2023, Midea Group's revenue was 373.7 billion yuan, an increase of 8.10% from 345.7 billion yuan in the same period last year. Net profit attributable to the parent was 33.72 billion yuan, a year-on-year increase of 14.10%. During the same period, Gree Electric's revenue was 205 billion yuan, a year-on-year increase of 7.82%; net profit attributable to the parent was 29.02 billion yuan, a year-on-year increase of 18.41%. Haier Smart Home's revenue in the same period was 261.4 billion yuan, a year-on-year increase of 7.33%, and net profit attributable to the parent was 16.6 billion yuan, a year-on-year increase of 12.81%.

In 2023, Midea Group's gross profit margin is 26.49% and its net profit margin is 9.07%, both of which are significantly higher than 24.24% and 8.67% in the same period of 2022. Gree Electric's gross profit margin in 2023 is 30.57%, and its net profit margin is 13.59%, which is also a significant increase compared with 26.04% and 12.18% in the same period of the previous year. Haier Smart Home's gross profit margin is 31.51%, and its net profit margin is 6.40%, both of which are slightly higher than 31.33% and 6.05% in 2022.

By comparing the 2023 financial reports, it can be found that Midea Group ranks first among the three major home appliance giants in terms of revenue size and growth rate, and its net profit of 33.72 billion yuan is far ahead of Gree Electric Appliances and Haier Smart Home, and its net profit is even more than twice that of Haier Smart Home.However, Midea Group's gross profit margin is the only one among the top three home appliance companies whose profit margin is lower than 30%, and its net profit margin is also lower than that of Gree Electric Appliances. Both indicators have much room for improvement.

In the first quarter of 2024, Midea Group's revenue was 106.5 billion yuan, a year-on-year increase of 10.19%; net profit attributable to the parent was 9 billion yuan, a year-on-year increase of 11.91%. During the same period, Gree Electric's revenue was 36.6 billion yuan, a year-on-year increase of 2.53%; net profit attributable to the parent was 4.675 billion yuan, a year-on-year increase of 13.77%. Haier Smart Home's revenue in the same period was 68.98 billion yuan, a year-on-year increase of 6.01%; net profit attributable to the parent was 4.773 billion yuan, a year-on-year increase of 20.16%. During the same period, Midea Group's gross profit margin was 27.32% and its net profit margin was 8.52%; Gree Electric's gross profit margin was 29.45% and its net profit margin was 12.76%; Haier Smart Home's gross profit margin was 28.95% and its net profit margin was 7.04%.By comparing the first quarter financial reports, Midea is the only home appliance giant with revenue exceeding 100 billion yuan in a single quarter, but it also has the lowest gross profit margin.

In terms of total market value, Midea Group leads by a large margin. As of the close of July 31, Midea Group's total market value was 445.4 billion yuan, Gree Electric's total market value was 225.4 billion yuan, and Haier Smart Home's total market value was 257.6 billion yuan.

High R&D, the next Siemens?

Midea Group is a company that attaches great importance to overseas markets. As early as 2013, Midea Group achieved an overall sales revenue of 121 billion yuan, of which export sales revenue reached 7.4 billion US dollars. It has become the home appliance company with the highest proportion of overseas market revenue. Midea Group has expanded its territory overseas, mainly through overseas mergers and acquisitions, and has opened up markets around the world. Its main brands include Carrier, Comfee, and Urejia, all of which were acquired through mergers and acquisitions, including the old home appliance giant Toshiba Life. It targets different markets such as Europe, America, Southeast Asia, and Africa. At present, it has strong development capabilities in developing countries such as Southeast Asia and Latin America.

Most of the overseas brands acquired by Midea Group are high-tech enterprises. For example, in 2014, it acquired Swisslog, increased its AGV business, and expanded into the medical and logistics transportation industries. In 2017, it spent 29.2 billion yuan to acquire the German Kuka Group, a world-renowned industrial robot manufacturer, and currently holds 94.55% of the shares. Kuka is a global automation company that provides intelligent automation solutions. Its main businesses include welding equipment, robot bodies, and system integration businesses, which has laid a solid foundation for Midea Group's smart home.

In terms of M&A methods, He Xiangjian is very similar to Siemens' former CEO Feng Bilu. M&A can expand their own business rapidly and quickly obtain the channels, orders and resources of the target of the acquisition without investing heavily in market development and R&D. The expansion model of expanding the business scope through a large number of acquisitions and then achieving synergy has high barriers, but the premise of M&A is that a large amount of funds is required. Fortunately, Midea has sufficient cash flow and sufficient resources to integrate the industrial chain and quickly help the acquired party to turn losses into profits.

While continuously acquiring technology companies overseas, Midea Group's investment in research and development is also increasing.Since 2020, the annual R&D investment has exceeded 10 billion yuan, with an increase of 18.74%, 5.02% and 15.57%. In the past three years, the R&D investment has been nearly 40 billion yuan, and the R&D proportion has been 3.5%, 3.7% and 3.9%, and the R&D proportion has been increasing. In the same period, Gree Electric's R&D investment was 6.297 billion yuan, 6.281 billion yuan and 6.762 billion yuan, with an increase of 4.03%, -0.24% and 7.65%, and the R&D proportion was 3.3%, 3.3% and 3.3%. In terms of R&D investment, Midea Group has a large leading advantage.

Midea Group's 2023 annual report disclosed that as of the end of 2022, the total number of patent families ranked seventh in the world, ranking first among Chinese companies and the global home appliance industry, with more than 28,000 invention patents. In 2023, it obtained more than 4,000 invention patents worldwide, ranking eighth in the world and first among Chinese private enterprises with 64,903 patent families.

Currently, Midea has about 200 subsidiaries, 35 R&D centers and 40 major production bases around the world, including 17 R&D centers and 21 major production bases overseas, with a total of more than 190,000 employees, more than 18,000 R&D personnel, and business in more than 200 countries and regions, and can achieve settlement in 22 currencies. In 2023, Midea Group's overseas market revenue was 150.9 billion yuan, a year-on-year increase of 5.79%, accounting for 40.4% of total revenue. During the same period, Gree Electric's overseas business accounted for only 12.1%.

Based on this, many people believe that Midea Group is expected to become the next international giant Siemens.

What is Xianjian at the critical moment?

In fact, the He Xiangjian family is not short of money. Since the Hurun Rich List entered China, the He Xiangjian family has always been on the list. In recent years, with the decline of real estate, the real estate tycoons have lost their glory, while the He Xiangjian family has remained in the top ten.

In 2023, He Xiangjian ranked sixth among China's richest people with a fortune of US$25.1 billion (about RMB 182.5 billion).Ranked ahead of him are Zhong Shanshan, Zhang Yiming, Huang Zheng, Ding Lei and Ma Huateng. Except for Zhong Shanshan of Nongfu Spring, all of them are world-renowned Internet tycoons. He Xiangjian is the only entrepreneur who made the top ten list for electrical appliance manufacturing.

As the only son of He Xiangjian, He Jianfeng has no interest in "taking over" Midea Group. Instead, he chose a different path from his father, focusing on investment and charity outside of the family business. Not far from the Midea Group's headquarters building is He Jianfeng's Yingfeng Building. Yingfeng Group is an industrial investment CVC, and its investments span the primary and secondary markets. In 2006, He Jianfeng invested 135 million yuan to take control of Shangfeng Hi-Tech and changed its name to Yingfeng Environment, which mainly engages in environmental protection business. This is the first listed company controlled by He Jianfeng. In 2023, Yingfeng Environment achieved revenue of 12.631 billion yuan, net profit of 498 million yuan, and a market value of 12.6 billion. He Jianfeng then entered the field of cultural media and also achieved remarkable results.

He Xiangjian has a relatively open mind. "Midea hired people from Beijiao in the 1960s, Shunde in the 1970s, Guangdong in the 1980s, Chinese in the 1990s, and the world in the 21st century!" This is He Xiangjian's way of hiring people. "I would rather miss out on a profit of 1 million than miss out on someone who is useful to the company." This is how He Xiangjian values ​​talent, which is why Fang Hongbo, the editor of Midea's internal publication, eventually became the helmsman of Midea Group.

He Xiangjian's talent concept is not only reflected in his respect and cultivation of talents, but also in his trust and authorization of talents. This makes Fang Hongbo stand out in the fierce market competition and become a representative of successful professional managers. Not only Fang Hongbo, but also the senior executives of the home appliance industry who have graduated from Midea are all over the domestic home appliance enterprises. Midea is also known as the "Huangpu Military Academy" for managers.

At critical moments for Midea, He Xiangjian always personally stepped in. According to China Fund News, in the A-share market, Midea Group is well-known for cherishing its stock price. In May 2021, Midea's stock price fluctuated. In order to stabilize the stock price, the company's actual controller He Xiangjian personally stepped in and planned to take out no less than 800 million yuan in real money to increase his holdings of his own stocks to boost market confidence.

Based on this precedent, some people point out that after the failure of Midea Group's listing on the Hong Kong stock market last year, He Xiangjian may come out again and use his influence to gain the attention of the capital market.

He Xiangjian is a competitive person. While his old rival Haier Smart Home has already achieved listing in three places, namely "A+H+Frankfurt", its overseas business revenue has accounted for 52%, making it the first home appliance company in China with overseas business accounting for more than half of its revenue. Against the backdrop of Chinese companies going global, for Midea that wants to expand in the global market, a listing on the Hong Kong stock market may be a lock opener.

Once Midea successfully rings the bell on the Hong Kong stock market, it will be the continuation of He Xiangjian's personal legend and the beginning of a new global journey for Midea Group.

Author|Meng Xiao