Original title: is millet Hard Suits Inc or Internet Co? The secret is on the cash flow.
What is millet?
How should investors assess the company, where is the risk and how big is the space?
Before launching the analysis, we will first show the content of this article to you - we judge: millet's sustained expansion has an inherent gene, millet system, is based on the development of mobile phone as the axis, how its ability to expand to more categories, millet is facing a major short-term test; we predict: millet will be established; A professional advisory group; we believe that how to deal with related transactions is a continuing risk of millet. With the expansion of the scale and category of millet sales, competition with Jingdong, Tmall and other platforms will intensify.
The cost advantage that comes from other supply chain systems is one of the survival foundations of millet.
The above conclusion is based on one of our estimates: according to our estimates, millet cash demand is negative throughout the business cycle. This is the underlying logic of the overall business layout of Xiaomi. "Cash turnover" is the fundamental clue to understand the value of millet.
In a sense, millet can be compared to Wal-Mart, which can become the world's largest business model, millet's imagination.
Declaration of "5%" net interest rate behind:
Negative cash demand
In the prospectus listed on the Hong Kong stock exchange, Xiaomi declared: "our commitment:... The overall hardware business of Millet (...) The consolidated net interest rate will not exceed 5%. If there is an excess, we will give feedback to users. "
This commitment is impressive, and it's hard to understand this adjustment simply from the net profit margin of the product. If we look at the whole supply chain, especially the flow of money in the supply chain, the answer is clear.
It should be noted that millet sells its products directly, and consumers need to pay immediately after ordering, but millet usually pays its suppliers 60-90 days after the accessories are in place.
Take 2017 as an example, it takes 36 days to free up the supplier's funds. According to the data of the semi annual report in 2018, the occupation time has been extended to 77 days.
This means that in this chain model, millet demand for cash is negative, the greater the sales, the more cash millet accumulates.
To a large extent, the money constitutes an important pool of funds for millet. We can see such a closed-loop financial business: the use of cash flow process, millet received a large number of "free" funds, the use of free commercial credit obtained, to earn additional income, can be declared on the basis of a "5%" low net interest rate, and then go upstairs.
Free credit driven millet business layout
Thus, one of the underlying logic of the millet overall business layout is formed: making use of the free commercial credit obtained by the cash flow model to earn additional revenue.
This provides clues and directions for future millet action and company value.
For example, the money can be invested in upstream suppliers or strategic investments, which is the business logic of Millet Investment Group. According to Millet Group's prospectus, "Our strategic investments can provide additional sustained revenue, and we plan to continue investing in companies that complement our business and growth strategies... In the first quarter of 2015, 2016, 2017 and 2018, the gains and losses of long-term investment in terms of fair value were RMB 2.8 billion yuan, RMB 2.7 billion yuan, RMB 6.4 billion yuan, RMB 1.2 billion yuan and RMB 1.8 billion yuan, respectively.
For example, this fund can be used in other related financial sectors, including consumer loans. This stimulates and promotes the sale of millet, and can also generate huge interest income. This is what millet financial group is doing.
According to the Millet Group's prospectus, millet receivables mainly include subsidiary company loans to provide customers with Internet financial services. "Loans receivable increased sharply from RMB 101.0 million yuan on December 31, 2015 to RMB 1.6 billion yuan on December 31, 2016, and to RMB 8.1 billion yuan on December 31, 2017, mainly due to the growth of Internet financial services... In March 31, 2018, it was 8 billion 200 million yuan. "
Millet exists inside.
Dynamic mechanism of expansion
To gain more free credit, expansion is inevitable. The path of expansion includes category expansion and regional expansion.
In terms of category expansion, the larger the millet stock, the better, to get rid of the risk of relying too much on mobile phone products, and to meet the needs of different customers.
From the perspective of regional expansion, channel sinking and internationalization are very important starting points.
However, increasing the complexity of the inventory unit will increase the inventory; geographical expansion will also bring the complexity of management, expanding the occupation of funds, delaying the turnover of goods.
Considering all aspects of the requirements, millet must continue to optimize the supply chain system investment, which includes sustained investment in the following areas: a strong sales network, flexible and efficient information systems, flexible and efficient supply chain system.
Next evolution of millet
The continued development of millet mode will push upstream related ecological enterprises.
Based on the promise of low hardware margins, cost pressures will be transmitted to these millet eco-enterprises, all of which will not be able to achieve profits by increasing sales margins, but must rely on more inventory turnover to improve asset margins.
Millet relies on the advantage of joint-scale purchasing to exert influence on more upstream suppliers, demanding better prices and better terms of payment. As a result, upstream suppliers will be forced to increase asset turnover and work to reduce costs.
Such pressure transmission is a benign interaction for the millet supply chain. At this time, based on the competitive pressure of other manufacturers, millet has the power to optimize the cost of the entire industrial chain.
With the further penetration of millet into the supply chain, we have reason to predict that millet Supply Chain Consulting Group will gradually form.
The group is committed to upgrading the management and operation skills of its industrial chain, providing management consulting services for industrial design, procurement, manpower, location, inventory control and management of the supply chain system to help reduce costs in the supply chain.
This is the key for millet to establish its own business moat to form a competitive advantage over other supply chain systems.
Millet's "empowerment" logic
The profit margins of the suppliers of millet supply chain are not without cost.
Millet group must give suppliers a stable expectation. It includes the timeliness of the refund, the experience of supplier service and so on. Continuous improvement in business, good risk control, and stable expectations are essential to suppliers'risk perception.
How to improve inventory turnover is a business need to consider the issue, how to delay payment time is only under the premise of strategic alliances and long-term cooperation, suppliers will be willing to accept.
Therefore, the reputation management of millet will be of strategic significance.
In addition, millet strategic stake in the upstream will help maintain this stability.
Empowering Xiaomi's industrial chain capability is a very important starting point. Specifically, we use "enterprise capabilities" with suppliers - brand sharing, industrial design, scale procurement, scale sales, financing, and so on. This formed a unique pattern, which shared capital gains through investment.
Risk of millet: related transactions
Millet has a very strong financial attributes, free credit if used improperly, will bring huge losses.
Based on the aforementioned shared enterprise capabilities in the ecosystem, inevitably brought a large number of related party transactions. How to deal with related transactions brought about by "empowerment" is the persistent risk of millet.
Improper pricing related transactions will bring a devastating blow to the value of millet. For example, if the millet financial group, which plays a key role, loses control, it will bring great value destruction to the group.
It should be noted that the current system is based on mobile phones as the axis of development, its ability to build and business development, how to expand to more categories, millet is facing a short-term test.
The main battlefield of millet
To achieve low gross profit, sales increase to get more free credit. Millet's future strategy includes product line expansion and geographical expansion.
The expansion of the sales network is also part of this expansion. With the expansion of millet sales scale, competition with Jingdong, Tmall and other platforms will be highlighted.
On the other hand, compared with other supply chain systems, the cost advantage of products is the basis of millet survival. Millet relies on cost-effective products to drive sales to scale up and attract close supply chains.
Once the price advantage of millet products is threatened, it will be fatal. The decline in sales will melt the free credit line with multiplier effect.
The integration capability of the supply chain is the core competitive advantage that millet must obtain and the key area that millet may be subverted.
We believe that from the sales network construction, supply chain control and the use of free credit and so on. Millet will be a big range of bidding for Wal-Mart, in this sense, millet's valuation, will also be a large part of Wal-Mart.
From the perspective of market capitalization, WAL-MART can become the largest enterprise in the world. This is also the imagination of millet.
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