China Consumer

Follow the boss

Why a high-flying appliance maker has faltered on bourse


Robam’s boss Ren Fujia

Its Chinese name is a derivation of the word boss (laoban). And for its entire eight-year history as a public company, Robam Electric has been the king of the kitchen appliances sector.

Its founder, Ren Fujia, once likened his strategy to declawing tigers with a pair of pincers: the tigers being foreign rivals like Siemens and the pincers comprising Robam’s products and its owner-operator corporate culture.

It proved to be a successful strategy and made Robam’s Shenzhen-listed unit, Hangzhou Robam Appliances, at one point the most valued stock in its sector above Midea, Haier and Gree but it has come right off the boil over the past month.

The immediate trigger was the company’s disappointing fourth quarter results, which prompted management to downgrade its short- and medium-term profit forecasts. However, smart investors ought to have been watching what company insiders were up to since they have been consistently selling their stock holdings since last May.

A large group of Ren family members led by the founder and his son netted Rmb108 million ($17 million) after dumping shares. Then again, in December, Ren’s wife, Shen Guoying, sold a further 1.8 million shares to the tune of $14 million.

All the dealings were publicly disclosed, but the trend has only recently been picked up by Chinese news media. As one netizen commented. “This kind of thing is so common in the A-share market. What can you do other than curse?”

Or as another puts it, “Some of these companies are such rogues. If you’re building a centuries-old business then you shouldn’t care about a period of smaller profits.”

The criticism is a big comedown for Robam, which has always been viewed as a “white horse” stock, a term in the local market for a blue chip. Foreign investors also have long loved it because profit growth has consistently outstripped revenue growth thanks to tight cost control.

But the company’s fourth quarter earnings were 9% below consensus, with full year profits of Rmb1.45 billion, up 20% on last year. The company said it expects profits and revenue growth to grow around this level for the next three- to five-years.

In other circumstances it would be a growth rate to relish, but Robam has always been valued at a premium to its peers because its profit growth has historically hovered in the 40% range.

As a result, the stock has dropped off sharply. It fell 22.6% over six consecutive trading days after its fourth quarter earnings were published.

Robam derives nearly two-thirds of its profits from tier-1 and tier-2 cities and its fortunes are closely tied to the property market, although it has been doing well in tier-3 and tier-4 cities.

One of the big issues has been a 30% differential between its offline and online prices. During the third quarter, it hiked online prices to try and close the gap and sales correspondingly ground to a halt.

Analysts worry that Robam may lose market share if bigger and more diversified rivals like Midea and Haier move more aggressively into the kitchen appliances sector.

It is particularly well known for its cooker hoods. That may be the kind of appliance many consumers take for granted; a kind of noisy light bulb as a kitchen designer once described it. But they are particularly important in China where flash flying generates a lot of grease.

Robam has generated a strong niche for itself. But it may also now face more competition from overseas. Within the next few months, the up-market German brand, AEG, is opening its first store in Shanghai. It says it may begin to localise production in the country too. In the meantime: watch what the family do with their shares…

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