No Major Surprises in Midea’s Q3 Results; Shares Remain Undervalued, but Lack Near-Term Catalysts

Narrow-moat Midea’s third-quarter net profit of CNY 8.5 billion, flat year on year, is largely within our expectation. We keep our fair value estimate at CNY 86 per share. Despite the lackluster growth, we think the results are decent given the headwinds on domestic economy and export growth, which we believe reflects the firm’s leadership position in the industry. We believe Midea is undervalued currently, underpinned by its operating efficiency and expanding market share. However, we think near-term share price performance will likely be capped by China’s weak consumer spending and a sluggish China property market. Longer-term positive drivers are Midea’s growing market share in the premium segment, as well as the successful expansion of its business-to-business operations.