Gree Electric Appliances Inc, of ZhuHai

Public (SZ: 000651)

Company Facts:

Gree Electric Appliances Inc. of ZhuHai (GEAZ) was known as ZhuHai City Haili Cooling Engineering Co. Ltd., which was established in 1989. After 1992, the company officially changed its name into Gree Electric Appliances Inc, of ZhuHai and listed in Shenzhen Stock Exchange.

The main focus of the company is manufacturing and sales of air-conditioner and exporting air-conditioning appliances and accessories. Boasting a huge staff of over 15000 the company is the air-conditioner giant in China (mainland), which has 21% of the market share and ranks number one in the industry.

GEAZ overtook LG in 2005 and become the biggest home air-conditioner manufacturer and supplier in the world. Gree Air-conditioner is Chinese first and also the only international air-conditioner brand.

Financial Overview

Related companies: (Name, relationship, and percentage of ownership/rights & interests):

Zhuhai Gree Group Company, Holding company, percentage of ownership: 22.58%; percentage of rights and interests: 100%

Zhuhai Meiling Tongji Co. Ltd., Holding sub-subsidiaries, percentage of rights and interests: 70%

Zhuhai Meilingda Cooling Technology Co. Ltd. Holding sub-subsidiaries, percentage of rights and interests: 70%

Zhuhai Zhengang Casting Co. Ltd. Holding sub-subsidiaries, percentage of rights and interests: 100%

Gree Electronic (Ma’anshan) Co. Ltd. Holding sub-subsidiaries, percentage of rights and interests: 98.4%

Brazil United Electronic Industrial & Commercial Co. Ltd. Holding sub-subsidiaries, percentage of rights and interests: 100%

Gree Electronic (Brazil) Co. Ltd. Holding subsidiaries, percentage of rights and interests: 100%

Gree Electronic (Chongqing) Co. Ltd. Holding subsidiaries, percentage of rights and interests: 97%

Zhuhai Gree Xinyuan Electric Co. Ltd. Holding subsidiaries, percentage of rights and interests: 100%

Hong Kong Gree Electronic Sale Co. Ltd. Holding subsidiaries, percentage of rights and interests: 100%

Zhuhai Lingda Compressor Co. Ltd. Holding subsidiaries, percentage of rights and interests: 100%

Zhuhai Gree Group Financial Co. Ltd. Holding subsidiaries, percentage of rights and interests:  53.92%

Zhuhai Gree Electric Co. Ltd. Holding subsidiaries, percentage of rights and interests: 100%

Gree Electronic  (Chongqing) Electric Technology Co. Ltd. Holding subsidiaries, percentage of rights and interests: 99.91%

Gree Electronic (Hefei) Co. Ltd. Holding subsidiaries, percentage of rights and interests: 100%

Zhuhai Kaibang Motor Manufacture Co. Ltd. Holding subsidiaries, percentage of rights and interests: 100%

Danyang Gree Electronic Co. Ltd. Holding subsidiaries, percentage of rights and interests: 65%

Zhuhai Gree Small Electronic Co. Ltd. Holding subsidiaries, percentage of rights and interests: 75%

Shanghai Gree Air-conditioner Sales Co. Ltd. Holding subsidiaries, percentage of rights and interests: 99.7%

Zhuhai National-owned Assets Operation and Administration Chamber, Actual Controller.

Stock Health:

As on 22nd July, 2008

Open: 23.23      High: 23.77      Low: 22.50       Close: 23.47   Vol.: 4,552,850

Key Stats & Ratios

     Unite: RMB 10,000 Yuan

Daily Stats (last one month):

DATE                OPEN    HIGH    LOW     CLOSE       VOL

Investment Analysis:

Over the years, Gree Electronics has researched & developed its unique cutting edge technology, such as intelligent body sensor air-conditioner, carbon-oxygen detector, intellectual ice-controller, variable frequency multi-unites air-conditioner, EVI low temperature starting system; and applied these technologies into its new products. Consequently, Gree air-conditioners immediately grasped the customers’ attention and gained profound market share.  Gree’s new products have been leading the main stream of the Air-conditioner industry since year 2007.

To accommodates its big demand Gree Electronics had to expand and its manufacturing capacity. Hence, the manufacture site in Hefei finished construction and started operation in first half of year 2008. It is assumed that the new factory will produce 3 million air-conditioners per year, which will help Gree’s air-conditioner capacity to meet the overwhelming demand in the market. Another project, Zhuhai Longshan Compressor

The stock of Gree Electronic has been regarded as top ten ‘Golden’ stocks in the beginning of the year, however, since May 2008, the stock performance has been rather depressing. Despite the fact that market has under-estimated the company’s summer sales in air-conditioners after Met Department’s forecasting of a cool & rainy summer this year, the overall increase of the company’s operational costs is the actual key reason of investors’ reducing interests and losing confidence in this stock.  But uncontrollable factors such as increase in raw material prices, increase in labor costs, increase in income tax and appreciation in Chinese currency which is also one of the main drawbacks for all the exporting businesses, like Gree, accumulated together has increased company’s overall costs and  the consequence of these factors will probably last longer than one would anticipate.

To conclude, it is undoubtedly remains a decent stock but is no longer a ‘golden’ time for investing in this stock. I would suggest that short term investors can still pay attention to this stock as the stock has almost reached its bottom, and will possibly have small range increment in the near future, but it is still risky. For better and safer returns, investors are suggested to not rush into this stock at this moment in time. For existing shareholders, it is necessary to be very patient and should definitely not buy-in more of this shares and it would be still right to hope to level the loss.