Initial Report: Gree Electric Appliances Inc. of Zhuhai(SZSE:000651), 49% 5-yr Upside (Junjie LI, CC VIP)

Junjie LI presents a "buy" recommendation for Gree based on its strong market position, sustained competitive advantages, and strategic initiatives like Jinghong expansion and channel optimization.

1.Executive Summary

Gree Electric represents a compelling value investment opportunity at current price levels. As China's dominant air conditioning manufacturer, Gree combines strong market leadership, technical innovation capabilities, and robust financial performance. The company's recent market share recovery following government subsidies for energy-efficient appliances, coupled with its high dividend yield (>6%) and low valuation (P/E of 8.0x), presents an attractive entry point for long-term investors. While facing headwinds in competitive dynamics and real estate market weakness, Gree's strong cash position (¥111.4 billion), deep economic moat, and strategic expansion into mid-to-low-end markets through its Jinghong sub-brand position the company well for sustained growth and shareholder returns. Our analysis suggests a 3-year target price of ¥58.13, representing 29% upside potential.

2.Company Overview

Gree Electric Appliances Inc. is China's leading air conditioning manufacturer and a global powerhouse in the HVAC industry. Founded in 1991 and headquartered in Zhuhai, Guangdong Province, the company has established itself as the premier brand in China's premium air conditioning segment.

2.1 Business Segments

Gree's core business remains firmly centered on air conditioning, which contributes approximately 80% of total revenue. The company produces a comprehensive range of residential and commercial air conditioning units with a strategic focus on high-efficiency, premium products that command price premiums and generate superior margins. This dominant position in the high-end market segment has been carefully cultivated through decades of brand building and technological innovation, resulting in substantial pricing power and consumer loyalty that competitors have struggled to replicate.

The Home Appliances segment represents a strategic diversification effort initiated in 2015 and accelerated in recent years. Operating primarily under the Jinghong brand, this division encompasses refrigerators, washing machines, water heaters, and various small home appliances. While still accounting for a relatively modest portion of revenue, this segment has demonstrated encouraging growth trajectories, particularly in urban markets where consumers increasingly value integrated home solutions from trusted brands. Management has identified this segment as a key growth vector as the core air conditioning market matures.

The Industrial Equipment division reinforces Gree's vertical integration strategy through manufacturing of precision machinery, molds, and compressors. This segment not only supports internal production requirements but also generates revenue through sales to external customers. By controlling critical component production, Gree maintains tighter quality control, reduces supply chain vulnerabilities, and captures additional margin throughout the value chain. The proprietary compressor technology developed within this division has been particularly instrumental in achieving energy efficiency breakthroughs in the company's premium air conditioning units.

Gree's newest and most promising segment focuses on Smart Equipment, developing intelligent control systems and IoT-connected appliances that represent the company's ambitious push into comprehensive smart home ecosystems. This segment leverages Gree's established brand presence and distribution network to capture growing consumer demand for seamlessly integrated home environments. The division has shown promising early adoption rates, particularly among younger, urban consumers who prioritize connectivity and automation features when making purchasing decisions.

2.2 Revenue Drivers

Government subsidies for energy-efficient appliances have emerged as a significant catalyst for Gree's recent performance. The implementation of "trade-in" subsidies with higher incentives (up to 20%) for Level 1 energy-efficient models has substantially benefited Gree's premium positioning in the market. The company's extensive portfolio of products meeting these stringent efficiency standards has translated directly into market share gains, with documented increases of 2.00 percentage points in Q4 2024 and an impressive 4.63 percentage points in January-February 2025. These policy-driven incentives align perfectly with Gree's established strengths in high-efficiency product development.

The domestic market recovery presents another crucial revenue opportunity following a challenging period of inventory destocking and intense price competition throughout 2023-2024. The air conditioning industry is now showing clear signs of stabilization and gradual recovery. Industry forecasts project modest but positive growth of 1.9% in domestic sales to 103.8 million units in 2025, with Gree positioned to capture a disproportionate share of this growth given its premium brand positioning and expanded product range. The replacement cycle acceleration in urban areas, where Gree enjoys particularly strong brand recognition, provides additional tailwinds.

Export market growth represents an increasingly important revenue driver as Gree continues its global expansion strategy. International sales are forecast to increase by 4.1% to 94.8 million units in 2025, outpacing domestic growth. This expansion is driven by several structural factors: rising air conditioning penetration rates in emerging markets, global warming trends that extend usage seasons and expand geographic demand, and increased cold chain applications in commercial and industrial settings. Gree has strategically targeted markets with favorable demographic and climate characteristics, establishing localized distribution networks to support sustainable growth.

Distribution channel optimization has been a focus area following earlier challenges. Gree's relationship with its dealer network, particularly the pivotal Jinghai Group, has stabilized and strengthened following earlier channel reforms. This improved relationship is evidenced by Jinghai's recent commitment to substantially increase its ownership stake in Gree through investments ranging from ¥10.5-21 billion. This vote of confidence from the company's primary distribution partner signals a new phase of channel stability and alignment that should translate into more effective market penetration and reduced promotional pressure.

2.3 Cost Drivers

Raw material costs represent one of the most significant variables affecting Gree's manufacturing economics. Steel, copper, and aluminum prices have historically created volatility in input costs, directly impacting gross margins. The recent stabilization in commodity markets has created a favorable environment for margin expansion. Gree's sophisticated procurement operations and significant scale advantages enable preferential pricing and strategic hedging practices that partially insulate the company from short-term price fluctuations. The company's long-term relationships with key suppliers further enhance its ability to manage these input costs effectively.

R&D investment remains a strategic priority for Gree, which consistently allocates approximately 5% of revenue to research and development activities. This substantial commitment, exceeding industry averages, is essential to sustaining technological leadership, particularly in energy efficiency and smart control systems. The company maintains state-of-the-art research facilities employing over 10,000 engineers and technical specialists. This R&D capability has generated over 30,000 patents and established Gree as the technological pacesetter in the industry, particularly in inverter technology, refrigerant innovations, and system optimization algorithms that deliver superior energy efficiency.

Manufacturing efficiency represents a cornerstone of Gree's competitive advantage and profitability profile. The company operates highly automated production facilities with industry-leading productivity metrics. Its vertical integration strategy, which includes self-manufacturing of key components like compressors, motors, and control systems, contributes significantly to industry-leading gross margins of approximately 31%. This integrated production model not only enhances quality control but also creates substantial barriers to entry for potential competitors, who would need to replicate billions in capital investments to achieve similar cost structures.

Operating leverage is a critical factor in Gree's profitability model due to the high fixed costs inherent in manufacturing operations. Capacity utilization rates significantly impact profitability, with each percentage point improvement in utilization translating to approximately 15-20 basis points in gross margin enhancement. Management has demonstrated disciplined capacity management through economic cycles, including strategic decisions to temporarily reduce production during demand downturns rather than engaging in margin-destructive price competition. This approach preserves brand equity while optimizing financial performance across varying market conditions.

2.4 ESG Considerations

Environmental responsibility is deeply embedded in Gree's corporate strategy, with the company's focus on energy-efficient products directly aligning with China's ambitious carbon neutrality goals. Gree has invested heavily in developing products with higher energy efficiency ratings, including its flagship "Zero Carbon Source" heat pump systems that reduce carbon emissions by up to 60% compared to conventional heating solutions. These initiatives not only address regulatory requirements but also respond to growing consumer preference for environmentally sustainable products. The company's manufacturing facilities have also undergone significant upgrades to reduce energy consumption and emissions, with documented reductions of 32% in carbon intensity since 2018.

Social impact considerations are reflected in the company's emphasis on product quality and safety, which enhances its brand reputation among increasingly discerning Chinese consumers. Gree maintains rigorous quality control standards that exceed regulatory requirements, with failure rates consistently below industry averages. The company's commitment to product longevity and repairability also addresses growing consumer concerns about electronic waste and planned obsolescence. Additionally, Gree's extensive training programs for employees and installation technicians contribute to broader workforce development within China's manufacturing sector.

Governance practices at Gree have undergone significant positive transformation following the 2019 mixed-ownership reform, which reduced state influence and introduced more market-oriented management incentives. Corporate governance has demonstrably improved with greater transparency, more consistent shareholder returns, and enhanced disclosure practices. The dividend payout ratio has increased substantially, reaching 45% in recent years compared to historical levels below 30%. The board structure now includes a higher proportion of independent directors with relevant industry expertise, and executive compensation has been more closely aligned with shareholder returns through performance-based incentive programs.

3.Competitor Analysis

The Chinese air conditioning market is characterized by fierce yet structured competition, dominated by three major players: Gree, Midea, and Haier. Together, these companies control approximately 70% of the domestic market, with Gree maintaining leadership in the premium segment while facing increasing competition in mid-to-low-end markets. Midea has gained ground through aggressive pricing strategies and its multi-brand approach, while Haier leverages its strong distribution network in lower-tier cities. Emerging competitors like Xiaomi have disrupted the online sales channel with technology-focused, competitively priced offerings that appeal to younger consumers. International brands such as Daikin and Panasonic maintain niche positions in the ultra-premium segment but have limited market share in China's mass market.

3.1 Economic Moat

Gree's economic moat is built upon several sustainable competitive advantages that have withstood decades of market challenges. The company's brand strength represents its most visible advantage, as Gree has become synonymous with quality and reliability in China's air conditioning market. This reputation, cultivated through consistent product performance and strategic marketing, allows Gree to command premium pricing power even in competitive environments. Consumer surveys consistently rank Gree as the most trusted air conditioning brand in China, with particularly strong loyalty among repeat customers who prioritize reliability over initial purchase price.

Technological leadership forms another critical pillar of Gree's competitive moat. With over 30,000 patents in its portfolio, the company maintains innovative leadership across multiple domains, particularly in high-efficiency compressor technology and smart control systems. Gree invests approximately 5% of annual revenue in R&D activities—substantially higher than industry averages—enabling it to regularly introduce technological breakthroughs. Its advancements in two-stage compression technology and G-VRT capacity regulation have set new industry standards for energy efficiency, providing material differentiation in an increasingly environmentally conscious market.

Unlike many competitors who rely heavily on outsourced components, Gree's vertical integration strategy represents a distinct competitive advantage. The company manufactures approximately 70% of key components in-house, including critical elements like compressors, motors, and electronic control systems. This approach ensures superior quality control throughout the manufacturing process while providing significant cost advantages, particularly during periods of component shortages or price volatility. Vertical integration also accelerates Gree's product development cycle, allowing faster integration of innovations across the product lineup.

Gree's distribution network constitutes perhaps its most defensible competitive advantage. The company maintains relationships with over 30,000 dealers nationwide, providing unparalleled market coverage from first-tier cities to rural towns. This extensive physical presence enables Gree to deliver superior customer service, including installation, maintenance, and after-sales support—critical differentiators in a category where proper installation significantly impacts product performance and lifespan. Recent reforms in channel management have strengthened relationships with key dealer groups like Jinghai Interactive, whose substantial equity investment in Gree demonstrates confidence in the company's long-term strategy.

Finally, as the largest air conditioning manufacturer in China, Gree benefits from significant economies of scale across its operations. The company's massive production volumes enable more efficient amortization of fixed costs, including R&D expenditures and manufacturing infrastructure. Scale advantages extend to procurement activities, where Gree secures preferential pricing for raw materials and components. These scale efficiencies translate into superior profit margins, with Gree consistently maintaining gross margins approximately 200-300 basis points above key competitors. The cumulative effect of these competitive advantages has created a self-reinforcing economic moat that continues to protect Gree's market leadership position despite intensifying competitive pressures.

4.Investment Thesis

4.1 Government Subsidy-Driven Market Share Recovery

The Chinese government's implementation of long-term subsidies for energy-efficient home appliances has disproportionately benefited Gree. With subsidies reaching 20% for Level 1 energy-efficient products, Gree's positioning as a premium manufacturer has translated into significant market share gains. After experiencing market share declines through Q3 2024, Gree reversed the trend with a 2.00 percentage point increase in Q4 2024 and an even stronger 4.63 percentage point gain in early 2025. The continuation of these subsidies provides a sustainable tailwind for Gree's premium product lineup.

4.2 Multi-Brand Strategy for Market Expansion

Gree's planned launch of air conditioners under its Jinghong sub-brand represents a strategic pivot to address its historical weakness in mid-to-low-end markets. This move mirrors successful strategies by competitors Midea (with Hualing) and Haier (with Tongshang), allowing Gree to compete effectively in price-sensitive segments without diluting its premium brand. The mid-to-low-end segment represents approximately 30% of online retail market share, suggesting significant growth potential for Gree through this initiative.

4.3 Strong Cash Position and Shareholder Returns

With ¥111.4 billion in cash reserves as of Q3 2024, Gree maintains exceptional financial flexibility. The company's commitment to shareholder returns is evident in its 2024 dividend of ¥2.38 per share (¥13.14 billion total), representing a 45.29% payout ratio and a dividend yield exceeding 6%. This dividend policy is sustainable given Gree's strong free cash flow generation and substantial cash reserves. In an investment environment increasingly focused on dividends, Gree's combination of high yield and growth potential presents a compelling proposition.

4.4 Compelling Valuation

Trading at a P/E multiple of 8.0x estimated 2024 earnings, Gree remains significantly undervalued relative to both its historical average and industry peers. This valuation disconnect exists despite the company's industry-leading profitability (net margin of 15.4%), strong balance sheet (net cash position), and improved growth outlook. The current valuation provides a substantial margin of safety for long-term investors.

5.Valuation

5.1 Discounted Cash Flow Analysis

Using a 5-year explicit forecast period and terminal growth rate of 2%, we arrive at an intrinsic value of ¥67.32 per share. Our DCF model employs a detailed bottom-up approach that accounts for Gree's competitive positioning in the HVAC market and its expansion into diversified product categories.

Key Assumptions

Revenue Growth Projections: Our revenue growth forecast projects a CAGR of 5.3% from 2024 to 2029. We anticipate 4.8% growth in 2024 driven primarily by recovery in the residential air conditioning segment as consumer confidence improves and replacement cycles accelerate. In 2025, we expect growth to strengthen to 5.2% as commercial segments gain momentum with the continued expansion of commercial real estate development in China's tier-two and tier-three cities. The 2026 forecast of 5.5% growth reflects increased contribution from Gree's expanding smart home product ecosystem, which should benefit from greater integration with the company's core HVAC offerings. For 2027, we project 5.7% growth as Gree's diversification strategy reaches maturity and the company captures additional market share in adjacent product categories. By 2028, we anticipate a slight moderation to 5.4% growth as the market approaches saturation in core segments, though international expansion provides additional growth vectors.

Profitability Metrics: We project gross margin expansion from the current 28.5% to 29.8% over the forecast period, driven by favorable product mix shifts toward higher-margin smart appliances and gradual reduction in raw material costs as supply chain pressures ease. Operating margin is expected to improve from 18.2% to 19.1% through operational efficiencies gained from manufacturing automation investments and scale advantages in procurement. Terminal net margin is projected at 16.0%, reflecting Gree's sustainable competitive advantages in manufacturing efficiency and brand premium. Throughout the forecast period, we assume R&D expenditure will be maintained at 3.5% of revenue, enabling Gree to sustain technological leadership while developing next-generation energy-efficient products.

Capital Efficiency: Our model incorporates working capital requirements of approximately 15% of incremental revenue, consistent with historical trends and industry standards for manufacturing businesses with similar operational profiles. Capital expenditure is projected to average 4.2% of annual revenue, primarily directed toward automation upgrades, capacity expansion in growth segments, and maintenance of existing facilities. These investments should support a return on invested capital (ROIC) of 22.6% by the terminal year, representing a premium to Gree's weighted average cost of capital and indicating value creation for shareholders.

Discount Rate Components: To calculate an appropriate discount rate, we begin with a risk-free rate of 3.0%, based on the current 10-year Chinese government bond yield. We apply an equity risk premium of 7.5%, which includes a China-specific risk premium to account for market maturity and regulatory considerations. Gree's beta of 0.95 reflects its correlation with the broader market, slightly below unity due to the defensive nature of its product portfolio and strong market position. These components yield a cost of equity of 10.1%. The company's after-tax cost of debt is estimated at 4.2%, reflecting its strong credit profile and access to favorable financing. Based on our target capital structure of 80% equity and 20% debt, which aligns with management's stated financial policy and industry norms, we derive a weighted average cost of capital (WACC) of 9.5%.

Terminal Value Calculation: Our terminal growth rate assumption of 2.0% aligns with long-term Chinese GDP growth expectations and accounts for market maturity offset by continued innovation and international expansion opportunities. This generates terminal year free cash flow of ¥19.2 billion. Applying the Gordon Growth model yields a terminal value of ¥261.6 billion, which represents approximately 68% of total enterprise value. This proportion falls within an acceptable range for mature companies with stable growth prospects. Our sensitivity analysis indicates that a 0.5% change in WACC impacts our valuation by approximately ¥4.10 per share, while a 0.5% change in terminal growth rate impacts valuation by approximately ¥3.65 per share, demonstrating the model's responsiveness to these key variables.

5.2 Comparative Valuation

Our comparative valuation applies multiple approaches to triangulate fair value relative to domestic and international peers, providing additional validation for our intrinsic value estimate.

P/E Multiple Approach

We apply a target P/E multiple of 10x to our 2026E EPS forecast of ¥6.66, yielding a price target of ¥66.60. This target multiple represents a 15% discount to the sector median P/E of 11.8x, reflecting a conservative valuation stance despite Gree's industry leadership and superior profitability metrics. The discount appears particularly conservative when compared to international competitors such as Daikin (trading at 14.2x) and Carrier (12.9x), which command significant premiums despite lower operating margins and returns on capital. Gree's historical 5-year average P/E has been 11.3x, suggesting potential for multiple expansion as the market recognizes the company's strengthening competitive position and improved corporate governance. The convergence to this historical average alone would represent approximately 13% upside from our target multiple.

EV/EBITDA Approach

Using a forward EV/EBITDA target multiple of 7.2x applied to our 2026E EBITDA projection of ¥29.4 billion results in an enterprise value of ¥211.7 billion. After adjusting for Gree's substantial net cash position of ¥18.9 billion, the implied equity value translates to ¥65.75 per share. Our selected multiple represents a 20% discount to the global HVAC manufacturers' average of 9.0x, providing a margin of safety while acknowledging the valuation differences between Chinese and developed market equities. This approach particularly benefits Gree due to its superior EBITDA margins compared to domestic peers and its substantial cash reserves, which comprise approximately 15% of its current market capitalization and provide both financial flexibility and downside protection.

P/B Approach

We apply a target P/B multiple of 1.8x to our projected 2026 book value per share of ¥36.20, yielding a secondary price target of ¥65.16 per share. This multiple is justified by Gree's projected return on equity of 18.4%, which significantly exceeds its cost of equity and the average ROE of the Chinese industrial sector. While the 1.8x target represents a premium to the Chinese industrial sector median P/B of 1.5x, the premium is warranted given Gree's superior capital efficiency, brand strength, and consistently high dividend payout. The company's strong balance sheet, with minimal financial leverage and substantial cash reserves, further supports the premium valuation on a book value basis. The weighted average of these comparative approaches yields a fair value of ¥65.84, highly consistent with our DCF-derived valuation of ¥67.32, reinforcing our confidence in the analysis.

5.3 Dividend Discount Model

Our Dividend Discount Model provides a third valuation perspective, focusing on Gree's strong cash return profile and shareholder remuneration policy, which has become increasingly important to investors in recent years.

Dividend Projection Analysis

Gree Electric currently pays an annual dividend of ¥2.20 per share, representing an attractive yield of 4.9% at current market prices. Based on the company's improving free cash flow generation and management's commitment to shareholder returns, we project an increase in the sustainable dividend to ¥2.50 per share by 2025. From this elevated base, we forecast a long-term dividend growth rate of 5% annually, which is conservatively below our projected earnings growth rate of 6.2% CAGR from 2024 to 2029. This growth trajectory is supported by a prudent payout ratio of approximately 45%, below the company's historical peak of 50%, providing a buffer against earnings volatility. The strong free cash flow generation capability of Gree, with an average cash conversion ratio of 95%, further underpins our confidence in the sustainability of the dividend growth trajectory, even during periods of increased capital expenditure or challenging market conditions.

DDM Calculation Components

Our baseline DDM calculation uses a starting dividend of ¥2.50 per share for 2025, growing at a long-term rate of 5.0%, against a cost of equity of 10.0%. The standard Gordon Growth model application (D₁/(r-g) = ¥2.50/(0.10-0.05) = ¥50.00) provides our initial reference point. However, to capture the more nuanced growth profile of Gree, we employ a three-stage growth model that reflects different phases of the company's development. In Stage 1 (Years 1-5), we assume 7% dividend growth as the company benefits from product mix improvement and market share gains. Stage 2 (Years 6-10) incorporates a moderation to 5% growth as the market matures. Stage 3 (Year 11 and beyond) assumes a perpetual growth rate of 3%, aligned with long-term inflation and GDP growth expectations. Discounting these variable growth stages back to present value yields an adjusted DDM valuation of ¥57.50 per share.

Sensitivity to Cost of Equity

The DDM valuation exhibits significant sensitivity to our cost of equity assumption. At a 9.5% cost of equity, the model yields a valuation of ¥62.25, while a more conservative 10.5% cost of equity reduces the valuation to ¥53.33. We select the mid-point 10.0% cost of equity for our base case, yielding the ¥57.50 valuation, as it appropriately balances Gree's strong competitive position against the macroeconomic and regulatory risks inherent in the Chinese equity market. This DDM result provides a more conservative anchor to our valuation range, appropriate for income-focused investors who prioritize dividend yield and stability over growth potential. The lower DDM valuation compared to our DCF and comparative valuation approaches suggests that the market may not be fully pricing in Gree's capital appreciation potential, creating an opportunity for total return investors.

5.4 Consolidated Valuation and Price Targets

Based on our three distinct valuation methodologies, we establish a weighted valuation framework that integrates the different perspectives to arrive at a consolidated fair value estimate. We assign a 50% weight to our DCF analysis (¥67.32) as it most comprehensively captures the company's intrinsic value based on fundamental cash flow generation. The comparative valuation (¥65.84) receives a 30% weight, reflecting its importance in understanding relative value but acknowledging the limitations of peer-based valuation in a market with few direct comparables. Finally, the Dividend Discount Model (¥57.50) is assigned a 20% weight, recognizing its relevance for income-focused investors while accounting for its more conservative outlook. This weighted approach yields a consolidated fair value estimate of ¥64.95 per share.

To account for the time value of money and the gradual realization of our growth and profitability assumptions, we apply a time-weighted approach to our price targets. Our near-term target price of ¥52.80 (representing 17% upside from current levels) reflects the value we expect to be realized within one year as the market begins to recognize Gree's improving fundamentals and earnings visibility. The medium-term target price of ¥58.13 (29% upside) represents our three-year price objective as the company executes on its diversification strategy and demonstrates consistent margin expansion. Our long-term target price of ¥67.32 (49% upside) corresponds to our five-year valuation, by which time we expect full recognition of the company's intrinsic value as growth initiatives mature and the quality of earnings becomes more apparent to investors. This progressive valuation framework suggests that Gree Electric is substantially undervalued at current levels, with expected returns significantly outpacing both Chinese industrial sector averages and anticipated market returns, providing an attractive opportunity for patient investors with a multi-year time horizon.

6.Risks and Mitigation

6.1 Macroeconomic Slowdown

Risk: As a durable consumer goods producer, Gree is sensitive to consumer confidence and disposable income growth. China's economic growth moderation could impact sales.

Mitigation: Gree's multi-brand strategy and international expansion diversify revenue sources. Additionally, the replacement cycle for air conditioners provides some demand stability even during economic slowdowns.

6.2 Real Estate Market Weakness

Risk: The Chinese property market downturn could negatively impact new installation demand for air conditioning units.

Mitigation: While new installations are important, approximately 60% of Gree's domestic sales come from replacement demand, which is less correlated with real estate market conditions. Government subsidies are also stimulating replacement purchases.

6.3 Intensified Competition

Risk: Competition from Midea, Haier, and emerging players like Xiaomi could pressure margins and market share.

Mitigation: Gree's technological leadership, brand strength, and expansion into mid-to-low-end segments through Jinghong position the company to defend its market position. Recent market share gains demonstrate resilience in competitive dynamics.

6.4 Raw Material Price Volatility

Risk: Fluctuations in steel, copper, and aluminum prices could impact profitability.

Mitigation: Gree's vertical integration and scale provide greater negotiating power with suppliers. The company also maintains strategic inventory levels to mitigate short-term price fluctuations.

7.ESG Assessment

7.1 Environmental

Gree has made significant progress in developing energy-efficient products, with its variable frequency technology reducing energy consumption by up to 60% compared to conventional units. The company's focus on Level 1 energy efficiency standards aligns with China's carbon neutrality goals. However, manufacturing operations still present environmental challenges requiring ongoing improvement.

Rating: Positive

7.2 Social

Gree maintains strong quality control and safety standards, with industry-leading product reliability. The company has also implemented responsible labor practices across its manufacturing facilities. However, further transparency regarding supply chain management would strengthen its social impact profile.

Rating: Neutral to Positive

7.3 Governance

Following its mixed-ownership reform in 2019, Gree has improved corporate governance practices with greater transparency and shareholder returns. The stabilization of relations with its dealer network represents positive progress in stakeholder management. Further improvements in board independence would enhance governance quality.

Rating: Neutral to Positive

8.Conclusion

Gree Electric presents a compelling investment opportunity for value investors seeking quality businesses at reasonable prices. The company's dominant market position, technological leadership, and strong financial performance provide the foundation for sustained competitive advantage. Recent market share gains following government subsidy programs demonstrate the company's resilience and adaptability.

At a P/E multiple of 8.0x and dividend yield exceeding 6%, Gree offers an attractive combination of current income and capital appreciation potential. Our analysis suggests fair value ranges between ¥58.13 (3-year target) and ¥67.32 (5-year target), representing upside potential of 29% to 49%.

While macroeconomic and competitive risks exist, Gree's strategic initiatives—including the Jinghong brand expansion and distribution channel optimization—position the company well to navigate challenges. For long-term investors, Gree offers the rare combination of quality, value, and yield that characterizes exceptional investment opportunities.

Recommendation: BUY