The secondary listing of a veteran home appliance technology giant, what does it have to do with energy storage?

Xinhua Energy Network & Xinhua Energy Storage (public account hxcn3060) has learned that on September 17, the Shenzhen Stock Exchange-listed company Midea Group (SZ: 000333) officially landed on the Hong Kong Stock Exchange. After 11 years, this home appliance giant's second attempt at an IPO has been realized, ultimately becoming an "A+H" share listed company.

Midea Group's IPO was priced at 54.8 Hong Kong dollars per share, raising 31 billion Hong Kong dollars per share, making the financing scale the largest project in Hong Kong stocks in the past three years. The actual controller of Midea Group, He Xiangjian, remains the largest shareholder, holding 30.87% through Midea Group Holdings.

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Today's Midea Group is no longer the Midea Group you know. Its business has covered a "global technology group" that includes smart home, industrial technology, building technology, robotics and automation, and other innovative businesses.

Midea Group has become an undisputed technology giant with a "halo" around it, forming a business matrix that simultaneously serves the consumer market (ToC) and enterprise customers (ToB) with equal emphasis.

Therefore, the purpose of the funds raised from this Hong Kong stock IPO, in addition to increasing overseas market expansion, on the other hand, focuses on the expansion of business and industrial solution businesses other than home business, which includes energy storage business that undertakes its "second growth curve" of the business.

So, why has the energy storage business become one of the new businesses that Midea Group has bet on for many years? How is its current "energy storage chess game" layout performing?

Continuously increasing investment in new energy business

Midea Group's business mainly covers smart home business and two major segments of commercial and industrial solutions. Looking at the business types again, energy storage business is categorized under the business structure of "commercial and industrial solutions".

This business includes new energy and industrial technology, intelligent building technology, robotics and automation, and other businesses.Today, Midea Group's customers have spread across more than 200 countries and regions worldwide. Based on new energy and industrial technology, Midea Group is capable of providing customers with green energy solutions. These include products such as large-scale energy storage, commercial and industrial energy storage, residential energy storage, smart grids, distributed photovoltaic solutions, and new energy vehicle components (including thermal management systems), allowing its various global clients to store and utilize renewable energy.

Midea Group's energy storage business layout has primarily been achieved through acquisitions. Midea Group acquired new energy companies Hopsone New Energy (SZ: 300048) and Kelon Electronics (SZ: 002121) in 2020 and 2022, respectively, to establish its energy storage business. The former has advantages in EPC photovoltaic business and commercial and residential energy storage, while the latter has experience in integrated photovoltaic and energy storage operations.

In May 2022, Kelon Electronics, a listed company on the Shenzhen Stock Exchange, was controlled by Midea Group through a private placement of shares, granting Midea Group 29.96% of the voting rights in Kelon Electronics, making He Xiangjian the actual controller of Kelon Electronics.

Kelon Electronics plays the role of the "main platform for energy management business" in Midea Group's new business strategy. Energy management is one of the four major tracks that Midea Group has built in the B2B market. While Midea Group is contracting non-strategic businesses, it is continuously increasing its investment in energy business.

Entering 2024, energy storage in China is in a period of rapid growth. Despite fierce price wars, there is a huge growth space. Additionally, the industry has high barriers to entry in areas such as battery cells, electronic power technology, and energy storage integration technology.

Therefore, in this Hong Kong IPO prospectus, Midea Group also stated that about 10% of the net proceeds raised, or about 2.597 billion Hong Kong dollars, is expected to be used for medium and long-term R&D, including next-generation energy storage technology, robotics, and related core components.

At the same time, Midea Group is very optimistic about the development of the energy storage industry: in terms of the value of newly installed capacity, it is expected that the global energy storage market size will further grow at a CAGR (Compound Annual Growth Rate) of 37.7% from 2023 to 2027; by 2027, it will reach 857 billion yuan.

Also calculated by the value of newly installed capacity, the growth of China's mainland energy storage market size is becoming more significant, expected to grow at a CAGR of 48.4% from 2023 to 2027, reaching 293.9 billion yuan by 2027.

This is the industry trend footnote that Midea Group values the research and development and layout of energy storage technology.

The revenue growth rate of energy storage and other businesses is steadily increasing.Midea Group's investment in energy storage and energy management has begun to yield results in terms of revenue. Data shows that the contribution of the commercial and industrial solutions business to the group's performance is gradually increasing.

According to the revenue data shown in the prospectus, Midea Group's commercial and industrial solutions business achieved revenues of 73.379 billion yuan, 83.639 billion yuan, and 97.78 billion yuan in 2021, 2022, and 2023, respectively, accounting for 21.4%, 24.2%, and 26.2% of total revenue; as of April 30, 2024, it achieved a revenue of 35.063 billion yuan, accounting for 24% of total revenue.

Midea Group has clearly stated that commercial and industrial solutions are becoming an increasingly powerful growth engine for its business, focusing on large-scale energy storage and commercial and industrial energy storage, ultimately achieving a situation where it keeps pace with the smart home business.

In addition, based on the previous global layout of the home appliance business, Midea Group's energy storage business has also "taken off" in the expansion of overseas markets. It is currently actively expanding the energy storage markets in Asia, Africa, South America, and other regions, achieving a global layout of energy storage business.

At the same time, Midea Group is also promoting the further integration of home energy storage products with home appliances, creating an efficient and safe home energy storage solution integrated with home scenarios for customers.

Midea Group's services can be seen everywhere in the photovoltaic and new energy vehicle industries. In recent years, Midea Group has gradually accelerated cooperation with giants in the wind and photovoltaic industries, such as Tongwei Co., Ltd. (SH: 600438), to jointly promote the application of photovoltaic equipment in various industries and expand downstream market demand.

In the field of new energy vehicles, Midea Group is also a professional "Party B", providing thermal management systems and motor products for the industry. Kuka Group, a Sino-German joint venture under Midea Group, provides 300,000 battery packs per year for an automobile manufacturing factory and equips it with 100 Kuka robots for welding, bonding, and packaging work on the assembly line.

After this Hong Kong stock IPO, its expansion in overseas markets and the expansion of energy storage business are expected to usher in a new pattern.

20% of the funds raised will be used to expand overseas production capacity.

Midea Group has already become an undisputed "halo"-clad technology giant. According to the sales volume and revenue in 2023, it is the world's largest home appliance company, with a market share of 7.9% by sales volume. According to the production volume in 2023, the home appliance compressor business ranks first in the global market with a market share of 30.3%.In mainland China, Midea Group's revenue in 2023 also accounted for 14.3% of the market share. However, it is undeniable that even giants face pressures, as the domestic consumer market growth is slow, and the growth pressure on To C business is immense.

Performance data shows that from 2021 to 2023 and the first four months of this year, Midea Group's revenue was 343.4 billion yuan, 345.7 billion yuan, 373.7 billion yuan, and 145.8 billion yuan, respectively. The net profit margin was 8.5%, 8.6%, 9.0%, and 9.4%, respectively.

By the first half of this year, its domestic market revenue increased by 8.37% year-on-year, significantly lagging behind the growth rate of 11.09% in the same period last year.

Therefore, in addition to actively crossing into new energy, Midea Group is also undergoing "transformation" at the group level from two aspects.

On the one hand, it is actively adjusting its business. In fact, since 2022, Midea Group has been actively contracting non-strategic businesses, successively contracting consumer businesses that "affect the overall profit level," and even shutting them down. However, in To B business, it "retains four major sectors: robotics and industrial automation, building technology, new energy vehicle components, and energy storage."

Obviously, this is related to Midea Group's "Green Strategy" released in 2021, which regards energy management as one of its core ToB businesses and has a long-term optimistic view of the industry's future market space and value.

On the other hand, it further explores the potential of the global market. As early as March this year, Midea Group CFO Zhong Zheng stated that the overseas market is one of the main directions for Midea Group's future development.

The prospectus shows that Midea Group is willing to use about 20% of the net proceeds from this fundraising, which is about 5.194 billion Hong Kong dollars, expected to be used for expanding overseas production capacity.

From a business perspective, Midea Group has established 17 R&D centers in 16 countries overseas and built 22 overseas production bases in 12 countries. It has more than 35,000 overseas employees, achieving global production and delivery, and continues to seek growth opportunities in overseas regional markets.

In terms of domestic and foreign performance, Midea Group's overseas revenue now accounts for more than 40% of the company's total revenue, and its products have been sold to more than 200 countries and regions worldwide.