格力电器投资分析英文报告

格力电器投资分析英文报告

ResearchonInvestmentValuation

of

GreeElectricAppliances,Inc.of

ZhuHai

格力电器投资分析英文报告

Content

1.MacroeconomicAnalysis........................................................................................1

1.1.Theglobaleconomy.....................................................................................1

1.2.DemoticEconomyAnalysis.........................................................................1

GrossDomesticProduct(GDP).....................................................................2

Inflation..........................................................................................................3

BudgetDeficit................................................................................................4

1.3.DemandandSupplyShocks.........................................................................5

Totaldemand..................................................................................................5

Totalsupply....................................................................................................5

1.4.GovernmentEconomicPolicy......................................................................6

FiscalPolicy...................................................................................................6

MonetaryPolicy.............................................................................................6

TheBusinessCycle........................................................................................8

IndustryIntroduction...............................................................................................8

2.1.IndustryProspects.........................................................................................8

2.2.CharacteristicsofComputerIndustry.........................................................10

Ahighcompetitivemarketcharacteristics...................................................10

2.3.NationalPolicies.........................................................................................10

EquityValuation...................................................................................................11

3.1.CAPM.........................................................................................................11

3.2.DividendDiscountModel..........................................................................11

3.3.Price-EarningsRatio...................................................................................12

FinancialStatementAnalysis................................................................................13

4.1.SolvencyAnalysis......................................................................................13

4.2.Long-termsolvency....................................................................................14

4.3.Operationanalysis......................................................................................15

4.4.CashFlowAanalysisandGrowthAnalysis...............................................16

Cashflows....................................................................................................16

OperatingActivities.....................................................................................17

GrowthAnalysis...........................................................................................18

4.5.ProfitabilityAnalysis..................................................................................19

Profitmargin................................................................................................19

Assetturnover..............................................................................................19

ROA.............................................................................................................19

ROE..............................................................................................................20

4.6.DuPontAnalysisforROE..........................................................................20

4.7.P/Eratioanalysis........................................................................................21

TechnicalAnalysis................................................................................................22

5.1.K-ChartAnalysis........................................................................................22

5.2.Thepredictionofshort-termtrend..............................................................24

Reference...............................................................................................................292.3.4.5.6.

格力电器投资分析英文报告

1.MacroeconomicAnalysis

1.1.Theglobaleconomy

ExchangeRate

Figure1.ExchangeRate

SourceOvertheyears,economistsandpoliticianshaveoftenchangedtheirmindsaboutwhetheritisagoodideatotrytoholdacountry’sexchangeratesteady,ratherthanletitbedecidedbymarketforces.TheexchangerateofCNYis6.5302YuanperUSdollarin20thApril2011.Ascanbeseenfromthecurve,theexchangerateofCNYexperiencedastabletransactionstagebetweentheyearof2009and2010,whichleveloffin6.83YuanperUSdollar.However,thereisasharplydeclineinthetimeofSeptember2010torecentfrom6.80to6.5302Yuan.ThisphenomenonimpliedthatthecurrencyofChinaYuanhasgainedthepurchasingpowerrelativetoAmericacurrency.ItmeansthatpeopleinChinapleasetodevotemoremoneytoconsumption,comparetoothercountries.

1.2.DemoticEconomyAnalysis

AftertheOlympicgameheldinChinaBeijingin2008,thedemoticeconomyhasrenewedtoenergy.Especiallyforthestockmarket,itreflectsthatalltheindustriesinChinapresentahugedevelopmentfromthatperiod.Until2011,thedemoticeconomystillexperienceanupwardtrendnomatterinGDP,CPIandRPI.

格力电器投资分析英文报告

GrossDomesticProduct(GDP)

GrossDomesticProduct

Figure2.GrossDomesticProduct

privateconsumption+investment+publicspending+thechangeininventories+(exports-imports).Itisusuallyvaluedatmarketprices;

ThedarkbluelinerepresenttotheGDP.Itsgrowthrateissimilartoprimary,secondaryandtertiaryindustries.TheGDPbottomedat5.75%in2008s,however,afterthatperiod,itincreasedsharplyatthepointofapproximatelyto10%intheendof2009swhichwastwiceasmanyas2008s.Until2011,theGDPexperiencedaslightdeclinetothepointof9.5%.ThisdatareflectsthatChineseeconomyremaintobesteadyinthewholetime.

格力电器投资分析英文报告

AsforGree,itisbelongstosecondaryindustry.Ascanbeseenfromthecurve,itisthemainpowerfulfactortoacceleratetheGDPgrowth,whichreachesahigherlevelcomparingwiththeGDP.Therefore,wecanforecastthatthereisapotentialpowerhidinmanufacturingsuchasGree.

Inflation

Theeffectofinflationcanbeeliminatedbymeasuring

GDPgrowthinconstantrealprices.However,anominalGDPtargetshouldbethemaingoalofmacroeconomicpolicy.Thisisbecauseitwouldremindpolicymakerstotakeintoaccounttheeffectoftheirdecisionsoninflation,aswellasongrowth.

MoneySupply

Figure3.Inflation

Source:/macro/macro_indicator.html?id=F0001#top

Themoneysupplygraphaboveshowsushowmuchcurrencytransfersinmarket.M0isreferredtoasthemonetarybase,ornarrowmoney.Itremainsalowestlevelamongothers,whichiscontinuallymaintainedat32,157hundredmillionYuan.

M1isreferredtoasthemonetarybaseortotalcurrency.Thisisthebasefromwhichotherformsofmoney(likecheckingdeposits,listedbelow)arecreatedandistraditionallythemostliquidmeasureofthemoneysupply.M2representsmoneyand"closesubstitutes"formoney.EconomistsuseM2whenlookingtoquantifythe

格力电器投资分析英文报告

amountofmoneyincirculationandtryingtoexplaindifferenteconomicmonetaryconditions.M2isakeyeconomicindicatorusedtoforecastinflation.ThecurveofM1andM2presentasteadyincreasefrom2009to2011withtheamountof232,603.25hundredmillionYuanand633,495.75hundredmillionYuan,respectively.

Asforthewholeperiod,themoneysupplycurveimpliesthatthereisaslightinflationinChina.However,Chinaraisesinterestratesamidinflationconcern.ThemovecomesjustaheadofthereleaseforMarchCPIfigures,whichmanyexpecttobehigherthanFebruary.China’scentralbankhasraisedinterestratesby25basispointsinanattempttotampdowninflationin5thApril.Wecandrawaconclusionthatthecentralbank'sabruptdecisionisafurthersteptotameinflation.

BudgetDeficit

BudgetRevenue,ExpendingandDeficit

Figure4.Budget

Source:/macro/macro_indicator.html?id=F0023#top

ThecurveofbudgetdeficitshowsusthatChinesegovernmentenlargedthedifferencebetweenexpendingandrevenuein2010.Thisbudgetdeficitprobablycreatelargeamountofgovernmentborrowingwhichleadtoforceupinterestratesbyincreasingthetotaldemandforcreditintheeconomy.Mosteconomistsbelievethatexcessive

格力电器投资分析英文报告

governmentborrowingwill“crowdout”privateborrowingandinvestingbyforcingupinterestratesandchokingoffbusinessinvestment.

DemandandSupplyShocks1.3.1.3.Demand

Totaldemand

Accordingtotheresearch,weconcludethatsalesofhouseholdappliancesindustry’stotalindustrialoutputvaluereached918.354billionYuanin2010s.Thereisanincreaseof29%and19%comparedwith2009and2008,respectively.Thetotaloutputvalueofnewproductsis258.566billionYuan,andthecumulativeincreaseis29.65%.Thedataweindicateaboveshowusthatthesales,whichrepresentthedemandofhouseholdappliances,maintainarapidlygrowthfrom2008to2010,andconsumersarepleasedtoacceptnewproductwhichaccountforapproximately20%oftotalsalesvalue.

Totalsupply

’sapplianceproductionFigure5.ChinaChina’

Source:NationalBureauofStatisticsofChina

Wecanseefromthemainhouseholdappliancesproductoutput,itpresentsafluctuantlevelfrom2009to2011.Duringthefirstyear,itwentupfrom49thousandto78thousand.Tobeginwith2010,theoutputpeakedatthepointof84thousand,however,itfelldownintheendoftheyearreboundto71thousand.Concentratingon2011,it

格力电器投资分析英文报告

startedwithalowlevelofoutputwhichwas52thousandintheJanuary.Andtheoutputimprovedtoanewhighpointat75thousandinMarch.

1.4.GovernmentEconomicPolicy

FiscalPolicy

Figure6.TheLabelofHOUSEHOLDappliancestotheruralpolicy

Nowadays,thenumberofourruralpopulationisabout3timesofurban.However，becauseofvariousrestrictions,therateofconsuminghouseholdappliancesinruralareasisstillrelativelylow.Currently,thestatehasimprovedthereformofruraltaxesandreleasedtheburdenonpeasants.Theeffortsinthispolicywillbenefittheruralconsumermarketandchangetheconceptofconsumingappliances.Therewillbearuralmarketreopentohouseholdapplianceindustry.

Appliancestothecountrysidepolicyarethoroughlyimplementingthescientificdevelopmentconcept.Itisanimportantfiscalpolicytoexpanddomesticdemand.Themaincontentofappliancestothecountrysidepolicyiscombinebusinessandindustrytoproducecharacteristicsforruralconsumption.Specifically,theproductionshouldbeequippedwithreliableperformance,qualityassurance,cheapprice,andafter-salesservice.

Governmentgivesacertainpercentage(13%)ofthefinancialsubsidiesforfarmerstopurchasehouseholdappliancesinordertoencouragethepurchasingpoweroffarmersandexpandruralconsumption.Finally,thepromotionoftheruralappliancedevelopmentoffersagreatopportunitytoexpandtheappliancemarketinChina.

MonetaryPolicy

ReserveRatio

格力电器投资分析英文报告

Figure7.ReserveRate

Source：DepositRate

Figure8.DepositRate

Source：Bothcurvesofreserveratioanddepositratiopresentanupwardtrendinrecentyears.AsweallknowthatthesituationofChinaissufferingalittlehighrateofinflationwhichoftenisassociatedwith“overheated”economies.Inordertorestraintheinflation,governmentincreasethereserveanddepositratio,respectively,whicharemeasurestoreducecurrenciescirculateindomesticmarket.Thismonetarypolicyisprobablyshorteningthecapitalofinvestmentandeffectonthestockmarket.

格力电器投资分析英文报告

TheBusinessCycle

Asforhouseholdapplianceindustry,withabove-averagesensitivitytothestateoftheeconomy,wouldtendtooutperformotherindustries.Therefore,itbelongstocyclicalindustries.Becausepurchasesofthesegoodscanbedeferredduringarecession,salesareparticularlysensitivetomacroeconomicconditions.

AccordingtotheGDPgraph,itindicatesthatourdomesticeconomyexperiencesperiodsofexpansioninthewholebusinesscycle.Underthishealthcondition,thepricesofmoststockswillincreaseasforecastsofprofitabilityrise.Finally,thecyclicalfirmswillraisethemostasaresultoftheyaremostsensitivetosuchdevelopments.Accordingly,firmsincyclicalindustrieswilltendtohavehigh-betastocks.Generallyspeaking,iftheeconomicnewsisoptimistic,stocksofcyclicalfirmswillpresentbestconsequences.

IndustryAnalysis

2.IndustryIntroduction

Afterthereformandopeningup,ChinaHouseholdElectricalAppliancesindustryexperiencedasignificantchangefromsmalltolarge,fromextensivetointensive,andthedomesticmarkettointernationalmarketdevelopmentandcompetitivenessmorethantenyears.Ithasformedaproduction,management,research,testing,teachingandotheraspectsofthecompositionofarelativelycompleteindustrialsystem.Theindustryhasanumberofbrand-nameproductsandbackboneproductionenterprises,basicallymeetthedomesticdemand,whilesteadilyintotheinternationalmarket.Inrecentyears,someforeignmultinationalcompanieshavewholly-ownedorjointventuresintoChina,setoffanewroundofinvestmentboom,andhaveanumberofinternationallyrenownedelectricalappliancesinthedomesticproduction.Also,thesalesstartedtomakeanalreadyfiercecompetitionbecomemoreintense,andanewroundofelectricalappliancesindustrymarketcompetitionhasbeenformed.Thefocusofcompetitionisthecapitalandtechnicalstrength.Thecompetitionisbeyondthescopeofthedomesticmarketandintotheinternationalarena.

source:/business/ciec/report/chreport.html

2.1.IndustryProspects

Chinesehouseholdelectricalappliancesindustryhasenteredanewperiodofdevelopment.AsChineseindustrializationandurbanizationhasaccelerated,thedomesticappliancemarketwillusherinanewroundofconsumptionstructureandproductupdates,especiallytheruralmarketisenteringaperiodofrapidspreadandbecomesanimportantmarket.Chineseurbanmarket,ruralmarkets,andexportmarketswillbebalanceddevelopment.

格力电器投资分析英文报告

Brandbuildingwillhavelongdevelopment.Theplantofosterhomeapplianceindustrywillproposethreetofiveinternationalhomeappliancebrandsinthetaskofbuildingthebrand.Thebrand-buildingontheapplianceindustryasawholewillcontinuetostrengthenthework,stepbystepguidetosomedomesticbrandschangingtoglobalbrands,andguideexportOEM-basedenterprisestochangetheirownbrands.Inindustryaspect,theChinesehomeapplianceindustryisbecometotheadvancedmanufacturingindustry.Acceleratedtechnologicaltransformationandequipmentwillgreatlyenhancetheautomationlevel.Theenterprisefromthetraditionallabor-intensiveassembly-basedmanufacturingindustrytoadvanceddevelopment.

Industrialdistributionwillbemorereasonable.Thenextfiveyears,theChineseappliancemanufacturingindustry,whichismainlyfromthedomestictothegloballevel,willspeedupoverseasacquisitionsandfactoriesconstruction.Graduallyreachtherealizationofglobalmanufacturingandglobalsales.Inthedomesticmarket,thehomeapplianceproductionbaseisbeingtransferredfromtheeasterntocentralandwesternregions,therehavebeenothernewappliancesproductionbases.

Asthedegreeofdepthtocompete,paniesarefromthesimplepursuitofscaleandmaximizethebenefitsofchangingtoactivecorporatesocialresponsibility,andenvironmentalresponsibilityandbecomearespected

business.

’sapplianceproductionFigure9.ChinaChina’

Source:NationalBureauofStatisticsofChina

格力电器投资分析英文报告

2.2.CharacteristicsofComputerIndustry

Afterthereforms,China'shomeapplianceIndustryhasexperiencedfromsmalltolarge,fromweaktostrongDevelopmentprocess,injust30years,hasachievedremarkablegrowth,Chinabecameoneoftheworld'slargestproducerofhouseholdappliances.Atpresent,Chinahastheworld'scolortelevisionsets,refrigerators,washingmachines,homeairconditioners,DVDplayersandotherproducingcountries.Inthepastdecade,risingcosts,energyshortagesandintensecompetitionforaccesstolow-profiteraofhomeappliances,householdappliancesIndustryrestructuringandintegrationbecomemoreactive.Inaddition,therapidDevelopmentofhomeapplianceindustrytechnology,digitaltelevision,Internetrefrigerators,intelligenthomeappliancessuchasinformationappliancesbecomethefocusofnewresearchanddevelopment.China'shomeapplianceindustrymarketshowsthefollowingdistinctivefeatures.

Ahighcompetitivemarketcharacteristics

China'shomeapplianceindustryhasexperiencedthedisorderscattereddistributioneraofcompetition.After20yearsofbrutalcompetitioninthemarket,thenumberofpoorlymanagedbecauseofthecompetitivenessofsmallenterprisesisnotenoughtophaseouthouseholdappliances,andfightagroupofexpertsinthebusinessstandoutinthemarket,gavebirthtothenationalwell-knownenterprises.

Householdappliancesindustryduetoitsowncharacteristics,strongemphasisoneconomiesofscale.SointheearlyDevelopmentoftheindustry,competitionamongenterprisesthemainbusinessstrategyisthesameindustryandoccupationofM&Amarketcompetitors,butasthecompetitionintensifies,theconcentrationofhouseholdappliancesgraduallyincreasethedegree,andgraduallyformaoligopolymarketforcesrathercompetitors,competitionhasbecomemoredifficult.

Barriersfromaccesstoview,homeapplianceindustry,everyindustryisstartingfromtheproductassembly,throughtheintroductionofforeignassemblylines,imitatingforeignTechnologydevelopmentandgrowthofproduction,theassemblyprocessisbasicallythesame,andthelow-tech,cannotconstitutebarrierstoentry.Howeverappliancesindustryismanufacturingenterprises,characterizedbypossessionoffixedassetsisasignificantpieceoftheproportionoftotalassets,makingtheapplianceindustry'sassetsarehighlyspecific,whichincreasethetransitioncosts,highbarrierstoexitthemarket,whichmakesthehouseholdappliancesmarketaccessbarriersareasymmetric,resultinginthedifficultiesoftransition,butalsointensifiedcompetitionwithintheindustry.

2.3.NationalPolicies

Topromotedomesticdemandandavoidtheimpactofinternationalfinancialcrisis,theindustryimplementthenational"capitalgrowth,promotedomesticdemandstructuraladjustment"approachtodevelopment.Since2007theGovernmentinthe

格力电器投资分析英文报告

applianceindustryhaslauncheda"homeappliancesgotoruralarea”,“energy-savingprojects","changeoldtonew"andthethreemajorpolicymeasuresforstimulatingdomesticdemand."homeappliancesgotorural"promotedomesticdemandmostinfluential,andthemostsignificanteffect.Inordertograsptherareopportunity,asatradeorganization,ChinaHouseholdElectricalAppliancesAssociationshouldlinkgovernmentandindustrytomakewayfortheirservices,andpromotecoordinatedandhealthydevelopment.

3.EquityValuation

WewillanalyzethegeneralvalueofGREEbyusingseveralmodels.

3.1.CAPM3.1.CAPM

AccordingtotheCAPMmodel,therateofreturnthatinvestorswillrequirefrom

theirinvestmentonasecuritycanbecalculatedthroughtheformula

below:

Weusetheshort-terminterestrateofcentralbank,whichis2.85%,torepresenttherisk-freerate.Sincetherequiredrateofreturnforthemarketissupposedtobe9%,thereforetheriskpremiumisequalto

6.15%.’svalueforGREEis1.0314.Therefore,thevalueofkforGREEis9.2%,whichmeansthattheinvestorswouldrequirea9.2%rateofreturnontheirinvestmentforGREE.

DividendDiscountModel3.2.3.2.Dividend

Figure10.Growthlevel

Source:AnnualReportofGreeElectricAppliances,Inc.ofZhuhai

格力电器投资分析英文报告

Fromtheabovegraph,wecanfindoutthatduringthelastseveralyears,thegrowthrateofGREEwhichexpressedastheproductofROEandtheretentionrateis

generallythesame,thereforewewillusetheconstant-growthDDMmodelto

evaluatetheintrinsicvalueofGREE’sstocksinceGREE’sdividendsaretrending

upwardatastablegrowthrate(g).Accordingtothismodel,theintrinsicvalueofthestockcanbecalculatedthroughthefollowing

formula:

,whereg=

ROE

InthecaseofGREE,thedividendwas0.3;theROEandretentionratioare0.307and0.256respectively.SotheintrinsicvalueofGREEis24.15.ThemarketpriceforGREEstockis22.69onaverage.Apparently,theintrinsicvalueofGREE’sstockishigher

thanitsmarketprice,andthedifferencebetweenthemarketpriceforGREEstockanditsintrinsicvalueimpliesthatthestockisunderpriced.Atpresentmarketprice,thestockinfactprovidesbetterthanafairrateofreturnrelativetoitsrisk.

Therefore,itcouldbeaprettygoodinvestmenttoholdingmorestocksofGREE.

Inthemeantime,underconstant-growthDDMmodel,theExpectedHolding-periodReturnE(r)couldbecalculatedas:

E(r)=dividendyield+capitalgainsyields

=

Inthis

equation,representsthepriceattheendofthefirstyear

and

representsthepresentmarketprice.Therefore,withthegrowthrateequalsto

7.86%,theexpectedHPRofGREEis9.3%.Clearly,comparingtotherequiredrateofreturn,whichis9.2%,calculatedinCAMPmodel,theexpectedHPRis0.1%higher.Therefore,investorscanactuallygainmorefromtheirinvestmentsonstocksof

GREE.

Price-EarningsRatio3.3.3.3.Price-Earnings

P/E=g

Computedbythefollowing:

Accountingyear

Retentionratio2010-12-310.2562009-12-300.2592008-12-150.290

ROE=4,303,205,496.16/14,011,708,220.99=0.30711498

b(retentionratio)=0.256

格力电器投资分析英文报告

g(dividendgrowthrate)

=

k=0.092aswementionedbefore

FromtheROEwegetfromthedata,wecanknowtheROEishigherthanrequiredratekeveryyear，thereforetheinvestorspreferthatthefirmreinvestearnings

ratherthanpayoutearningsasdividends,becauseGREEoffersattractiveinvestmentopportunity.ThenGree’svalueisenhancedasthoseopportunitiesaremorefully

exploitedbyincreasingtheplowbackrate.,forthehighertheplowbackrate,the

higherthegrowthrate

Next,ThePEratioweforecastedishigherthantheactualPEratio.Therefore,the

stockisunderpriced.Greenisnowundervalueinthemarketanditisanexcellentcompanythatdeservestoinvest.

FromtheP/Eratioandstockriskanalysis,wecanconcluderiskierstockswillhavelowerP/Emultiples.GREEhavehigherPEmultiples,whichmeansthatGreeislessriskier.

ThedatesshowthatGreealwayshasalowprice-earningsratio,inthepastfifteenyears,thehigheraverageprice-earningsratiois31,andtheloweraverageoneis13.Anditsprofitgrowthrateishigherthan20%after2004,whileonlyabout10%

before.However,theprice-earningsratiosbefore2004aremuchhigherthantheseafter2004.Myunderstandingisthatthechangeofstockpricecan’tkeepupwiththeprofitgains.ThewholemarkethasnoconfidenceinGREE’Sperformance,soitis

underpriced.

4.FinancialStatementAnalysis

SolvencyAnalysis4.1.4.1.Solvency

Short-termsolvencyorliquidityanalysis

Short-termsolvencyratiosasagroupareintendedtoprovideinformationaboutafirm'sliquidity;theprimaryconcernisthefirm'sabilitytopayitsbillovertheshortrunwithoutunduestress.

Liquidityratiosareparticularlyinterestingtoshort-termcreditors.Sincefinancialmanagersareconstantlyworkingwithbanksandothershort-termlenders,anunderstandingoftheseratiosis

essential.

格力电器投资分析英文报告

Figure11.Short-termSlovency

Source:AnnualReportofGreeElectricAppliances,Inc.ofZhuhai

Oneofthebest-knownandmostwidelyusedratiosisthecurrentratio.Fromthegraphabovewecouldseethecompany'scurrentratioalwaysgreaterthan1,anumberweexpecttosee.Thisratioreflectsarelativelygoodsituationforthecompanysinceahighcurrentratioindicatesliquidity,butitalsoindicatesaninefficientuseofcashandothershort-termassets.Forthecompany'squickratioandcashratio,theyfluctuatealot.Thefluctuationofquickratioshowsthattheirinventoryaccountsforarelativelylargepartoftheirassets.Intotal,wesaythecompanyhasagoodshort-termsolvencyability.

4.2.Long-termsolvency

Long-termsolvencyratiosareintendedtoaddressthefirm'slong-runabilitytomeetitsobligations,oritsfinancialleverage.Thegraphbelowisthethreeindicatorsoflong-termsolvencyofGreeElectricAppliance.

格力电器投资分析英文报告

Figure12.Leverage

Source:AnnualReportofGreeElectricAppliances,Inc.ofZhuhai

Operationanalysis4.3.4.3.Operation

Figure13.OperationAnalysis

Source:AnnualReportofGreeElectricAppliances,Inc.ofZhuhai

Weusethreeindicatorstodothecompany'soperationanalysis.Whattheyareintendedtodescribeishowefficiency,orintensively,afirmuseitsassetstogeneratesales.Firstwelookattwoimportantcurrentassets:inventoryandreceivables.

格力电器投资分析英文报告

Thecompany'sinventoryturnovervariablealotduringthedecades.Especiallyintheyear2002,2003and2008,theratioapproximatelyreaches7.Thehighertheratiois,themoreefficientlythecompanymanaginginventory.Thereceivableturnoverlooksathowfastthecompanycollectsonthosesales.Wecouldseethatbefore2003,theratiowentadownwardtrend,butafter2004,itincreasesquicklyandreachitspeakattheyear2008.In2009,becauseofthefinancialcrisis,theratiosuffersasharplydecline.

Thetotalassetturnovershowshowmuchthecompanygeneratedforeverydollarinassets,acloselyrelatedratio,andthecapitalintensityratiocanbeinterpretedasthedollarinvestmentinassetsneededtogenerate$1insales.SoweexpectedtheTATsmallerthan1.Thesamewiththereceivableturnover,itsuffersadeclineintheYear2009;fortunately,allthoseratiosshowarecoverfromthenon.Sowecanexpectthecompanyhasagoodfuture.

4.4.CashFlowAanalysisandGrowthAnalysis

Cashflows

Figure14.CashFlowsAnalysis

Source:AnnualReportofGreeElectricAppliances,Inc.ofZhuhai

Acommon-sizeanalysisofthestatementofcashflowsaidsisusefultototalthemajorsourcesandusesofcashoveraperiodoftime.Weillustratetheanalysisofprioryears'statementsofGreeElectronicCorporation,wecanfindthatthenetcash

格力电器投资分析英文报告

flowisfluctuating—onepositiveandonenegative.In2007and2009,thecashinflowislargerthanoutflow;whilein2008and2010theoutflowoverweighstheinflow.Whatdothesefiguresindicate?Isitreasonableordistorted?Wemaylookdeepertofindoutwhatbehindthesefigures.

OperatingActivities

Figure15.OperatingActivity

Source:AnnualReportofGreeElectricAppliances,Inc.ofZhuhai

Accordingtothedata,cashreceiptsfromthecustomersareincreasingstepbystepexceptyear2010.In2008,cashreceiptsfromthecustomersincreasedby27%andby104%in2009.Althoughin2010,theamazingincreasedidnotcontinue,thecashreceiptsisalsohigherthan2008and2007.

Therefore,wecanconcludeGreeElectronichasahealthincreaserateofcashreceiptsandgoodabilitytowithdrawcashfromcustomer.Besides,theincreasetendencyshowsGreeElectronichasahighgrowthprospect.

Moreover,thecashreceiptstakeagreatpercentageofthetotalcashreceived,indicatingthatGreehandlesitsmajorbusinessprettywellsothatthesalesconditionishealthyandactive.

格力电器投资分析英文报告

GrowthAnalysis

Figure16.TotalAssetGrowthRate

Source:AnnualReportofGreeElectricAppliances,Inc.ofZhuhai

Figure17.EPSGrowthRate

Source:AnnualReportofGreeElectricAppliances,Inc.ofZhuhai

Fromthedata,itverifiesGreeElectronicCorporationexperiencedahighgrowthperiodin2007and2008,andthenisgoingtoastablegrowthperiodwitha47%moreorlessEPSgrowthrate.SincetheEPSgrowthrateinthefirstseasonin2011is46.2522%,wemayforecastthatGree’swillhaveaatleast40%EPSgrowthrateinthenext5years.

Atthesametime,weoughttotakesomepotentialrisksintoconsideration.TheslowdownspeedofEPSgrowthrateandassetgrowthratein2010tellusthattheincreaseofprofitisslowdown.Amongvariousrisks,theunstableforeignmarketandRMBexchangeratearetwomainreasons.

ProfitabilityAnalysis4.5.4.5.Profitability

格力电器投资分析英文报告

Profitmargin

Totalassetturnover

ROA

ROE7.81%0.927.19%30.52%7.73%0.826.37%27.35%5.87%1.368.01%27.21%3.68%1.495.48%3.39%1.495.04%21.67%19.97%Profitmargin

ProfitMargin=EarningsbeforeInterestandTax/Revenue

Profitmarginisanindicatorofacompany'spricingstrategiesandhowwellitcontrolscosts.Innormalyear,profitmarginisapproximately6%;inbadyear,itisabout3%;andingoodyear,around8%.

Assetturnover

Assetturnoverisafinancialratiothatmeasurestheefficiencyofacompany'suseofitsassetsingeneratingsalesrevenueorsalesincometothecompany.Innormalyear,AssetturnoverforGREEELECTRICAPPLIANCES.INCis1.36,meaningthatsalesof1peryearweregenerated1.36perRMBofassets.Inabadyear,thisratiodescendsto0.82peryear,andingoodyear,itascendsto1.49peryear.

ROA

Thereturnonassets(ROA)percentageshowshowprofitableacompany'sassetsareingenerating

revenue.

ausefulnumberforcomparingcompetingcompaniesinthesameindustry.The

tableaboveshowsthattheROAofGREEisjustalittlehigherthanthatofindustryaverage,wemayconcludethattheGREEneedtoimprovetheassetmanagement,

thereforeitcanincreaseditsrevenueandsaveditsmoneymoreefficiently.

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