I'm genuinely concerned that Konka might shift its focus towards pursuing flashy trends or revert to the aesthetics of earlier years. My hope is that even if changes occur, it tries to become a holding company akin to Lenovo. Perhaps this would help settle public concerns.
The latest developments outlined in its recent interim report suggest that there's potential for such a shift. On August 25, Shenzhen Konka A released its mid-2017 report. The figures showed a revenue of 11.406 billion yuan, marking a 32.49% year-on-year increase; the net profit reached 30.87 million yuan, up 140.53% year-on-year; the earnings per share (EPS) were 0.01 yuan. While the year-over-year growth numbers are impressive, the actual performance doesn't stand out. Clearly, the previous performance was lackluster. The home appliance industry, particularly the overall black plate sector, hasn't been performing well, with low valuations. It's challenging to argue that over 100 billion yuan in revenue yields only 30.87 million yuan in net profit, and this profit isn't primarily from operations but rather from non-operating income, mainly asset disposal. During the same period, Konka's operating cash flow was negative, with a significant figure. The current mid-term business reality isn't appealing.
However, the financial data alone doesn't reveal the full picture. Recently, Liu Fengxi, Chairman of Konka Group, mentioned in interviews that color TVs were once considered a high-tech industry 20 years ago and were still seen as glamorous. "Since 2000, our focus has shifted to how traditional businesses can adapt," he emphasized, adding that "Konka is no longer just a color TV company; it plans to become an investment holding platform, and the color TV business will seek an independent listing." This sets a mid-to-long term tone for Konka. However, hidden details make people uneasy:
First, while the color TV industry was indeed attractive, stating that Konka has focused on 'how traditional businesses have changed' since 2000 raises questions. Second, saying "we're no longer just a color TV company" hints at a transformation into an investment holding platform, emphasizing investment as the primary driver with color TV business following suit. Third, announcing intentions to seek an independent listing for the color TV business suggests ulterior motives.
My prediction is that the color TV business might aim to raise funds in the future, possibly through equity releases and strategic capital introductions. This approach could bring external capital and pressure. Seeking an IPO might initially be rhetorical, perhaps intended to attract strategic capital.
This must involve the capital of Konka Group. If the existing Konka A loses its core color TV business, the entire business could become hollowed out. Investors might not approve, and even if they did, filling the void would be difficult.
In contrast, both LeTV and Gome have faced challenges when over-relying on their listed subsidiaries. Konka Group might use its listed companies as platforms to create new financing opportunities for investment businesses. In the future, we might see similar instrumentalization.本质上，家电行业在康佳集团ä¸å°±åƒä¹è§†çš„ä¹è§†ç½‘å’Œå›½ç¾Žçš„å›½ç¾Žä¸€æ ·ã€‚
This seems to be a common group structure, similar to Lenovo Group's Legend Holdings model, but within the same structure, the role of the core business is different. I believe Liu Fengxi's logic is based on the fact that Konka's home appliance industry has established a strong position in China, which justifies such a statement. If this were merely for transition purposes, even using such logic would be futile.
On the other hand, in 2015, Konka experienced a severe shock that was memorable enough to be included in global business school textbooks. People are concerned that Konka is seeking compromises and excessively catering to changes led by major shareholders.
As a veteran home appliance company in China, Konka has nearly 40 years of history and was once one of the Big Three in China's CRT era. Its mindset shouldn't be described as backward, but it lacks the ability to quickly integrate key resources. It remains stuck at the level of mindset and philosophy.
This system imposes many constraints on Konka, leading to ongoing conflicts with major shareholders. The main contradiction lies in industry competition. In China, home appliance manufacturing companies are essentially real estate companies, and Konka's business model is destined not to fully separate from the land economy and real estate patterns. However, because the main shareholder's main business is also real estate (primarily commercial real estate), the competition between the two has persisted for a long time.
For Konka, real estate has dual significance: First, it naturally forms industrial real estate; second, many supporting projects can easily be converted into commercial real estate or even residential properties, balancing the pressure of its own home appliance business operations. Over the years, the real estate in its possession has indeed increased significantly. Gree, Haier, Hisense, Changhong, and TCL all have robust real estate businesses, with some already listed. Since Konka is under Overseas Chinese Town's control, the two sides continue to play games. Later, to secure a key plot of land, legal disputes arose.
In recent years, Konka has felt a deep sense of crisis, relying heavily on off-farm income. Real estate business can mitigate some risks. Additionally, although Overseas Chinese Town is a major shareholder, it is not absolutely controlled, holding only over 20%. In the long-term game, it maintains the upper hand, representing the largest number of seats on Konka A's board. This situation has led to a lack of motivation for Konka's management and general employees for many years compared to its peers, appearing quite passive.
After repeated games, Overseas Chinese Town reasserted dominance over the board of directors, and Konka regained stability. Throughout 2016, the strength of the main business recovered. Although there was no real profit change, many businesses benefited from asset disposals. However, the intelligent transformation, especially Internet services, achieved positive results. Of course, the most notable was the implementation of competing global executive candidates at the end of the year. Although some aspects were hard to change immediately, there was fresh talent inflow.
Konka has been repositioning since 2017. It aligns with Overseas Chinese Town's overall transformation and seeks change. This step has indeed yielded results. The Mid-Range report showed another profit. Although much of it came from non-operating income, the market stabilized.
However, it's clear that Konka Group's immediate reforms are incomplete. There are still two risks:
First, while we aren't worried about the investment holding platform's capital strength, it needs extensive investment experience. Konka's积累 in this area is shallow. Although there are new personnel, establishing a reputation in the short term is challenging. Moreover, it focuses more on areas promising faster investment returns rather than new projects.
Second, the home appliance business has generated substantial revenue for the Konka Group and even Overseas Chinese Town. In the long run, it plays a critical role in cash flow. However, currently, Konka Group might have overdrawn on this part of the business. Before expanding investment control businesses, the appliance business must not be overly weakened. Otherwise, the entire Konka Group could become hollow.
In 2017, Konka's revenue target was 30 billion yuan, with a net profit reaching 300 million yuan. This means the home appliance industry will still heavily rely on core revenues, and profits may still come from outside the industry.
I said that Konka's transformation is not without challenges and doesn't entirely deny the path it chooses. It does have a new flavor, not only eliminating horizontal competition with major shareholders but also addressing the dual pressures of real estate policy control and color TV growth.
However, Konka's main industry is unstable. It's racing against time. If it fails to form new hematopoietic functions soon, especially mining profit points, it will face emptiness. Although the 2017 mid-term report was superficially profitable, it relied on certain resource overdrafts. In my view, Konka in 2018 will face a greater challenge.
ZHOUSHAN JIAERLING METER CO.,LTD , https://www.zsjrlmeter.com