Qingdao Haier Boosts Performance through Incentive Plan

The stock incentive plan of Qingdao Haier Co., Ltd. (SHSE: 600690), a leading home appliance maker, received approval from the China Securities Regulatory Commission (CSRC) on September 15 and will be discussed at the company's shareholder meeting at the end of this month.

The incentive stock will be granted to board directors, top executives and technicians of Qingdao Haier and its subsidiaries. The stock options total 17.71 million shares, 2.25 million of which will be given to the company's board chairman Yang Mianmian, 1.58 million to vice chairman Liang Haishan, 11.5 million to technicians and the rest to top executives.

However, the conditions for the exercise of those options are very rigor, compared with that of another counterparts Hisense Electric Co., Ltd. (HEC and SHSE: 600060), which also worked out a stock incentive plan, pointed out a home appliance analyst of CITIC Securities Co., Ltd. (SHSE: 600030).

HEC requires that its average net profit growth must be at least 14% and weighted return on net assets not lower than 8% in 2009 and 2010, while Qingdao Haier's options will not be exercised unless the compound annual growth rate of its net profits at least hit 18% and return on net assets 10%.

Clearly, Qingdao Haier requires better performance for the exercise of its options. An 18% net profit growth means that the company's net profits at least surge 72% four years later.

But, one thing is common between the two companies. That is, their incentive stocks are both mainly granted to technicians. Seven top executives of Qingdao Haier only get 35.07% of the total options and technicians of HEC obtain 66.8% of the 4.91 million shares of incentive stock.

A home appliance analyst of Guosen Securities discloses that Qingdao Haier has been slower than archrivals Gree Electric Appliances Inc. of Zhuhai Co., Ltd. (SZSE: 000651) and GD Midea Holding Co., Ltd. (SZSE: 000527) in terms of performance in recent years.

That is why Qingdao Haier is brewing encouraging the enthusiasm and creativity of its top executives and technicians through an incentive plan. Later, the company is believed to consolidate its white goods assets.

Haier Group will first sell a 9.8% stake in Haier Electronics Group Co., Ltd. (SEHK: 1169) to Qingdao Haier to boost the latter's shareholding to 29.9%, which will not trigger a tender offer.

Then Haier Electronics Group will kick off a private placement to Qingdao Haier. The latter will subscribe for more shares in the former. After the asset restructuring, Qingdao Haier will speed up its growth in the future years.

(USD 1 = CNY 6.83)

Source: www.163.com (September 16, 2009)

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