Dongguan Securities: Gree Electric Appliance intends to cancel 100 million repurchased shares

Recently, the company announced that it intends to adjust the use of the repurchased shares in the second phase, from the original plan that "repurchased shares will be used for employee stock ownership plans or equity incentives" to "repurchased shares will be used for write-off to reduce registered capital".

Comments: the company has carried out three share buybacks since 2020. The first phase and the second phase of the repurchase of the company have been completed, in which the amount of the repurchased shares in the first phase is close to 6 billion yuan. Part of the repurchased shares in the first phase has been used in the employee stock ownership plan, and the draft plan has been published. The second phase of the repurchase shares is about 6 billion yuan. As there is no specific plan to use the second phase repurchase shares for the employee stock ownership plan or equity incentive, the company plans to change the use of the second phase repurchase shares to write off to reduce the registered capital; the third repurchase is under implementation, with an upper limit of 15 billion yuan.

The first phase of employee stock ownership plan has a large discount, and the incentive premise of performance evaluation is relatively loose, which leads to the dissatisfaction of minority shareholders. The previously released draft employee stock ownership plan mentioned that employees can buy shares in the company at a price of 27.68 yuan per share, equivalent to 12000 employees can buy shares in the company at a 50% discount. At the same time, the planned performance review plan can be understood as the trigger for 2021 to basically return to 2019 levels, and 2022 for performance to return to 2018 levels, with an annual growth rate of about 10 per cent. Affected by novel coronavirus's epidemic situation and the company's channel reform factors in 2020, it belongs to the performance depression, so the performance evaluation conditions are easy to reach. Although the employee stock ownership plan can realize the bundling of the interests of employees and the interests of the company, the rationality and feasibility of the plan are the premise of whether the incentive is effective or not. After the announcement of the employee stock ownership plan, it has a great negative impact on the company's stock price, and most of the minority shareholders think that it is harmful to their interests. We believe that the employee stock ownership plan will help retain talent, but it remains to be seen how it will boost the company's performance.

The second phase of the repurchase of shares is used for cancellation, which is conducive to the improvement of earnings per share. A total of 101261838 shares are repurchased in the second phase of the company. after this change and cancellation, the total share capital of the company will be changed from 6015730878 shares to 5914469040 shares. The change of the use and cancellation of the repurchased shares is subject to the consideration and approval of the general meeting of the shareholders of the company. Share buyback is one of the common means for listed companies to maintain price stability in the secondary market, which is conducive to safeguarding the interests of shareholders, society and employees. If the cancellation and repurchase of the shares can be successfully completed, to a certain extent, it will help to improve the level of earnings per share and play a positive role in improving the investment return of the company's shareholders; at the same time, it also reflects the company's concern and maintenance of the rights and interests of medium and small investors, which will help to boost the confidence of minority shareholders in the company.

The maximum amount of shares repurchased in the third phase exceeds the sum of the previous two buybacks, and the use is still worthy of market attention. The first phase of the employee stock ownership plan mentions that the total number of shares held by all valid employee stock ownership plans of the company does not exceed 10% of the total share capital of the company, and the total number of shares corresponding to the equity interests of individual employees does not exceed 1% of the total share capital of the company. As shown in the third phase of the share repurchase plan, the third phase of the repurchased shares will also be used for employee stock ownership plans or equity incentives.