Company Reports

Midea is one of the largest household appliance manufacturers in China, with key products being air conditioners, refrigerators, washing machines and small household appliances. It is consistently ranked as one of the top three players in China by retail sales in most home appliance product categories. We think the firm’s leadership position is underpinned by its reputable brand, extensive distribution network and strong focus in research and development.

We initiated on Midea’s Hong Kong-listed shares with a HKD 91.10 per share fair value estimate. Still, we have lowered the A-shares’ fair value estimate to CNY 82.00 per share from CNY 86.00 as its Hong Kong IPO mildly diluted our valuation. Midea issued about 566 million new H-shares at HKD 54.80 per share, an over 20% discount to its A-share closing price of CNY 63.51 as of Sept. 13, 2024, with total proceeds accounting for around 6% of its market capitalization as of the same date. We retain our financial forecasts and narrow moat rating on Midea, given no change in its operations, and view both A-shares and H-shares as undervalued. We believe Midea’s margin expansion potential has not been reflected in current share prices. As Midea’s H-shares are not subject to the 30% foreign investors’ holding limit in the A-share market, we think overseas investors may prefer to accumulate H-shares.

Narrow-moat Midea delivered a robust first half—top line and operating profit beat our estimates. We believe Midea’s sales outperformed the domestic home appliances industry average thanks to its superior brand equity and sales network, as well as the tailwind of China’s export trend of expanding overseas. While automobile clients’ slow capacity rollout weighed on the robotics business, the impact is low, given its limited bottom-line representation. With the Chinese government issuing subsidies for home appliances and overseas demand likely staying strong in the second half, we raise our 2024 revenue and operating profit estimates by 3% and 17%, respectively, as we assume better profitability under operating leverage. That said, we keep our midcycle forecasts and fair value estimate of CNY 86 per share. With material undervaluation, we think Midea’s shares remain appealing to investors willing to look through the near-term sector volatility.

Midea is one of the largest household appliance manufacturers in China, with key products being air conditioners, refrigerators, washing machines and small household appliances. It is consistently ranked as one of the top three players in China by retail sales in most home appliance product categories. We think the firm’s leadership position is underpinned by its reputable brand, extensive distribution network and strong focus in research and development.

We are positive about the incremental subsidies to the nationwide home appliance trade-in program revealed by the National Development and Reform Commission, or NDRC, and the Minister of Finance, or MOF, on July 25, 2024. The subsidies will span eight categories, including air conditioners, fridges, and washing machines. Each consumer can enjoy a subsidy for one product per category, with 15%-20% discount on the selling prices of energy-efficient units. Compared with prior subsidies, we are upbeat that more clarity is provided on the funding, which is mostly backed by the issuance of super-long-term government bonds. While the CNY 150 billion in total subsidies also incorporates automobile and consumer electronic products, we expect a material proportion to flow to home appliances.

We transfer coverage of Midea and maintain our fair value estimate at CNY 86 per share. We also keep our narrow Morningstar Economic Moat Rating, Exemplary Morningstar Capital Allocation Rating, and Medium Morningstar Uncertainty Rating on the company, given our unchanged view on its business outlook and investment capabilities. Midea reported upbeat first-quarter results, with about a 10% year-on-year growth in both revenue and operating profit. As the company’s premium brands Colmo and Toshiba deepen penetration in China, we expect them to ramp up revenue mixes and drive a 5.3% five-year revenue compound annual growth rate in 2023-28. An improving product mix, coupled with more efficient cost control of the Kuka robotics segment, should lift Midea’s operating margin to 10.8% in 2028 from 10.0% in 2023, in our view. While we raise our midcycle operating margin forecast to 10.8% from 8.4% previously, this is largely offset by slower inventory and receivable turnover projections, given rising competition and a slowdown in China’s home demand. We continue to view Midea’s shares as modestly undervalued, and its generous dividend payout ratio at around 60% should win more appeal, especially from long-term investors.

Midea is one of the largest household appliance manufacturers in China, with key products being air conditioners, refrigerators, washing machines and small household appliances. It is consistently ranked as one of the top three players in China by retail sales in most home appliance product categories. We think the firm’s leadership position is underpinned by its reputable brand, extensive distribution network and strong focus in research and development.

After fine-tuning our model, we keep narrow-moat Midea’s fair value estimate at CNY 86 per share following its in-line 2023 earnings. Midea’s 2023 net profit rose 14% year on year to CNY 33.7 billion. We continue to like its operating efficiency and leadership position in the industry. We believe Midea is currently undervalued, underpinned by a decent three-year net income compound annual growth rate of 8% for 2023-26. Given its stable growth profile and strong balance sheet, we think it is a good candidate for a defensive investment portfolio.

Midea is one of the largest household appliance manufacturers in China, with key products being air conditioners, refrigerators, washing machines and small household appliances. It is consistently ranked as one of the top three players in China by retail sales in most of the home appliance products. We think the firm’s leadership position is underpinned by its reputable brand, extensive distribution network and strong focus in research and development.

We maintain our fair value estimate of CNY 86 for narrow-moat Midea. Despite the share price rising more than 15% year to date on the expectation of more supportive measures from the Chinese government, we think the shares remain undervalued currently, underpinned by Midea’s operating efficiency and leadership position. Trading on the lower end of its historical trading range at 13 times 2024 projected earnings, Midea’s current valuation is attractive in our view on the back of a three-year EPS CAGR of about 9% for 2022-25, and a strong balance sheet with net cash position. We expect a rebound in consumer confidence in China and a gradual recovery in the property market to help increase interest in its shares. We also expect Midea to provide an update on its plan to list H-shares at its upcoming results briefing.

Midea’s third-quarter net profit rose 12% year on year to CNY 9.5 billion, largely within our expectations. We maintain our fair value estimate at CNY 86. We think Midea’s ability to deliver earnings growth amid concerns about consumer spending and the lackluster real estate sector is impressive. We believe Midea is undervalued currently, underpinned by its operating efficiency and expanding market share. In the longer term, we expect growing market share in the premium segment, and the successful expansion of its business-to-business, or B2B, operations to drive share price performance.

Midea is one of the largest household appliance manufacturers in China, with key products being air conditioners, refrigerators, washing machines and small household appliances. It is consistently ranked as one of the top three players in China by retail sales in most of the home appliance products. We think the firm’s leadership position is underpinned by its reputable brand, extensive distribution network and strong focus in research and development.

Midea’s first-half 2023 net profit rose 14% year on year to CNY 18.2 billion, slightly ahead of our expectation due to the better-than-expected gross margin. We raise 2023-24 earnings estimates by 3%-4% to factor in the latest results, but our longer-term earnings are largely unchanged. We keep our CNY 86 fair value estimate, but we lower our Morningstar Uncertainty Rating to Medium from High to reflect Midea’s resilient business, which continued to deliver earnings growth during the coronavirus pandemic. Although the near-term share price performance may be capped by concerns about the lackluster property market and weak domestic economy, we believe Midea is undervalued. This is underpinned by the firm’s decent net income CAGR of 9.3% for 2022-27.

We keep narrow-moat Midea’s fair value estimate at CNY 86 following the firm’s in-line 2022 and first-quarter 2023 earnings. Despite COVID-19 disruptions and a sluggish China property market, Midea’s 2022 net profit rose 3% year on year to CNY 29.6 billion. Furthermore, first-quarter 2023 net profit also increased 12% year on year to CNY 8.0 billion, which demonstrates the firm’s operating efficiency and leadership position in the industry. We believe Midea is currently undervalued, underpinned by a decent five-year net income CAGR of 9% for 2022-27.

Midea is one of the largest household appliance manufacturers in China, with key products being air conditioners, refrigerators, washing machines and small household appliances. It is consistently ranked as one of the top three players in China by retail sales in most of the home appliance products. We think the firm’s leadership position is underpinned by its reputable brand, extensive distribution network and strong focus in research and development.

We keep narrow-moat Midea’s fair value estimate at CNY 86 after reviewing our earnings assumptions. While Midea’s share price has gained more than 30% since the end of October 2022 on the back of China’s reopening and an improved outlook for the real estate market, we think the shares remain undervalued currently, underpinned by the firm’s operating efficiency and leadership position. That said, given the recent strong share price performance, we will need to see further catalysts such as stronger sales growth and supportive policies from the government to help rerate the stock. Trading at around 12 times 2023 earnings, Midea’s current valuation is not excessive in our view versus its historical trading range of 7 times to 27 times since listing in 2013.

Midea is one of the largest household appliance manufacturers in China, with key products being air conditioners, refrigerators, washing machines and small household appliances. It is consistently ranked as one of the top three players in China by retail sales in most of the home appliance products. We think the firm’s leadership position is underpinned by its reputable brand, extensive distribution network and strong focus in research and development.

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.

Midea is one of the largest household appliance manufacturers in China, with key products being air conditioners, refrigerators, washing machines and small household appliances. It is consistently ranked as one of the top three players in China by retail sales in most of the home appliance products. We think the firm’s leadership position is underpinned by its reputable brand, extensive distribution network and strong focus in research and development.

Midea is one of the largest household appliance manufacturers in China, with key products being air conditioners, refrigerators, washing machines and small household appliances. It is consistently ranked as one of the top three players in China by retail sales in most of the home appliance products. We think the firm’s leadership position is underpinned by its reputable brand, extensive distribution network and strong focus in research and development.