As the oldest color TV industry, Sichuan Changhong has been very troubled these years. In the great era of rapid technological change, it seems to have lost its way and its performance has continued to slump. In 2015, Changhong had a huge loss of 1.974 billion yuan. Although the 2016 business performance has rebounded rapidly, according to the latest report of the third quarter of 2017, the company's net profit after deduction was a loss of 75.76 million yuan. Why did the old appliance giants step into the performance quagmire? As an old user of Changhong TV, Observe Jun to review all the causalities.
The decline of the old home appliance giants
Changhong, which started as a military company, has gone through a period of development since its listing in 1994. It has become one of the giants of home appliance giants and has been keeping pace with Qingdao Haier. But now, it is farther and farther away from the latter. As mentioned earlier, in the third quarter of 2017, Sichuan Changhong Co., Ltd. had a loss of 75.76 million yuan, but Qingdao Haier had a profit of 4.965 billion yuan. Changhong’s current market value is 18 billion, and Haier has already exceeded 100 billion. And Hisense Electric, which is also the main manufacturer of TV sets, still earned 485 million yuan after the third quarter of non-deduction, with a market value of 21.3 billion yuan, which is also a hang-up of Changhong.
Once everyone stood on the same starting line, why is the gap so great?
Changhong's desolateness has two notable events: First, its huge amount of bad debts with American company APEX made Changhong seriously hurt. First, it lost strategic importance and invested heavily in plasma TV projects. It was abandoned by the market.
The dispute with APEX occurred during the peak period of Changhong. At the beginning of 2001, Changhong, which had overcapacity, began to implement the strategy of “big market foreign trade†and selected the United States as the main market for sales. APEX was the target of cooperation and traded in the United States as a credit sale.
However, after Changhong provided products for APEX, its accounts receivable increased dramatically. At the beginning of 2001, Changhong’s accounts receivable amounted to RMB 1.82 billion. By the end of the year, this figure had increased to RMB 2.88 billion, an increase of 58.2%. By the end of 2003, Changhong’s accounts receivable had reached 4.98 billion yuan, of which APEX owed 4.45 billion yuan. At the end of 2004, Changhong announced that “American importer APEX has suffered large losses due to patent fees, anti-dumping and poor management of China’s color TV, and there are major difficulties in paying the company’s arrears.†This was exposed to the outside world. A staggering bad debt amount.
According to Changhong's 2004 annual report, this bad debt led Changhong to lose 3.681 billion yuan in the same year. That is, in that year, Ni Runfeng stepped down as chairman of Changhong, and now chairman Zhao Yong took over. If you say that in front of the huge losses to blame APEX this "pig teammate", then behind the strategic failure, Changhong management is duty-bound.
At the time, the color TV industry was facing a three-way upgrade from the CRT to plasma and LCD TVs.
In 2006, Zhao Yong officially announced at Sichuan Province's “Industrial Strong Provincial Conference†that Changhong’s investment direction was a plasma screen. In the same year, Changhong Hao thrown 2 billion U.S. dollars, which included South Korea's Orion Plasma Co., Ltd., and then invested 720 million yuan to establish Sichuan Hong Europe Display Devices Co., Ltd., which mainly manufactures plasma panels.
However, as we all know behind things, the market eventually chose the LCD screen.
As of the end of 2013, Changhong's investment in Hong Europe reached 1.72 billion yuan. The result was a year-on-year loss. In 2014, Changhong was finally intolerable. The announcement announced that 64,200,000 yuan was for the sale of 61.48% of Hong Europe. At this point, Changhong's gamble ended in a complete failure. By this time, Changhong has invested more than 4 billion yuan in plasma projects.
It can be seen that the decline of Changhong is not only due to the encounter of “pig teammates†in front of them, but also because there is an “old-eyed†management team behind it.
Blind diversification, artificial intelligence can hardly support future performance
After the plasma project ended in failure, seeing Changhong’s revitalization in the TV market was basically hopeless, and as 2014 entered, the wave of networking and intelligence began to sweep across the appliance industry. Major home appliances companies have focused on their transformation and intelligence. Haier, Midea and Gree also successively threw out their intelligent strategies and established their own intelligent ecology. Internet companies such as Ali, Xiaomi, Suning and other internet giants and retail giants also joined the battlefield.
For Sichuan Changhong, this is another chance for a revival. However, whether or not it can “overtake the curve†is not optimistic. The fundamental reason is that after losing the hegemonic power of the TV market, Changhong has long lacked its own core products and diversified development has been too blind.
In fact, Changhong has long opened the road to diversification, such as batteries, air conditioners, and even in 2005, such as mobile phones, IT products industry. After 2008, it was even a hot real estate industry. In 2017, Changhong’s diversification road continues. According to the 2017 semi-annual report, Changhong launched a smart home application solution and achieved breakthroughs in the five business areas of smart control, security, large media, energy, and health, and achieved large-scale marketed sales.
Energy? Health? Changhong is very powerful in these two areas? To observe the monarchy, so a comprehensive cast of the net is not suitable for the current Changhong.
2017 Semi-annual Report Main Business — Classified by Product
In addition, according to the company's semi-annual report in 2017, Changhong’s main products had the largest turnover of intermediate products, which was 8.48 billion yuan, followed by IT products, which was 8.41 billion yuan. The revenue from white goods and black appliances was 7.8 billion yuan and 6.4 billion yuan respectively. Among them, the operating income of batteries, set-top boxes and communication products in black household appliances was 530 million yuan, 440 million yuan and 100 million yuan respectively. In addition, the transportation and processing industry and real estate contributed 480 million yuan and 300 million yuan in operating income for the company. From the above data, it can also be found that although Changhong is now spreading its booth, it has no core competitiveness.
On the other hand, Haier, as mentioned above, has been focusing on home appliance production and is rarely involved in other fields. According to its semi-annual report in 2017, Haier refrigerators have a much higher turnover than other products. This is the key product with its core competitiveness. The same is true for Hisense Electric. Its main product is only TV sets, but its performance is "second kill" Changhong.
If Changhong has bright spots, it is enough to start early in the field of artificial intelligence. In 2012, Changhong began the basic research of related technologies. In 2016, it was the first to launch the world's first artificial intelligence television. But for now, its competitors such as Hisense, TCL, Skyworth, etc. have also quickly followed suit. Although it started early, in the field of artificial intelligence television, Changhong did not show obvious advantages. The introduction of artificial intelligence television only made 2016's performance improved. After entering 2017, it became exhausted and once again sounded a loss alarm.
Although the early birds have worms to eat, their wings are not hard enough and lack core skills. After all, they can't grab the Hawks.
Lose money to earn money, rely on subsidies to live for how long?
In fact, from the financial statements, Changhong’s turnover is increasing this year. In the first three quarters, the company’s operating income increased by 12% year-on-year to RMB 54.4 billion. However, the net profit fell by 68% to 160 million yuan, and after deducting the blame, the loss was 75.76 million yuan.
Why does business increase and net profit decreases drastically? Is it profitable to lose money?
In this regard, in the third quarterly report, Changhong did not explicitly explain. However, according to its disclosure in the semi-annual report, the reasons for the decline in profits, including the rapid increase in the prices of bulk materials such as copper, steel, and panels, have caused some squeeze on the profitability of related industries, and the profit of refrigerators (freezers) has decreased compared to the same period last year. Affected by the timing of the settlement of commercial projects, the profits of real estate business decreased by 200 million yuan year-on-year; the changes in the market environment in India led to a decrease in the shipment of set-top boxes.
According to the three quarterly reports, Changhong has apparently obtained a large sum of “extra money†before it will generate a net profit of 160 million yuan. This is Changhong's disposal of non-current assets and receiving government grants, which amounted to 130 million yuan and 140 million yuan. After deducting these two huge funds, Changhong turns from profit to loss as a matter of course.
In fact, as early as 2014 and 2015, Changhong had a loss of 1.68 billion yuan and 480 million yuan respectively. If there is no subsidy of 260 million yuan and 240 million yuan, I am afraid it would have been "capped."
From this we can see that Changhong’s data in recent years has largely depended on government subsidies. However, this is not a permanent solution. With government subsidies to live, which put the old color TV boss's face to where to put it, but it is a fact.
Originally, 2016 Changhong's performance has improved. Unfortunately, at present, this trend is unlikely to continue in 2017. On the other hand, while other home appliance industries such as Gree, Midea, Haier, and Boss Electric have soared, Sichuan Changhong still lingers in three blocks. In the moment when value investing is in vogue, the capital market is so cold to it that, combined with the above analysis, it must have its own reason. It is regrettable that the former blue-chip stocks have fallen into this situation. Of course, in recent years, Changhong has successively launched CHiQ series TVs, refrigerators, air conditioners and other products, and its willingness to change is very strong. Although it has failed to reproduce the glory of the past, at least not yet out of the market trend, it is considered to keep the hope of a revival for the future.
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