Midea Group Research Summary Company Overview - **Company**: Midea Group - **Sector**: Appliances - **Description**: Midea is a leading technology-driven global provider of Smart Home Solutions (2C) and Commercial & Industrial Solutions (2B). It is the world's largest home appliance company, with a significant presence in industrial robotics through its subsidiary KUKA [doc id='10'][doc id='11']. Key Insights from the Conference Call Industry and Market Outlook - **2B Segment Growth**: Midea's commercial AC factory visit in Chongqing confirmed a strong outlook for the 2B segment, with expectations of positive growth in FY26 despite potential softness in 1Q26 due to tough comparisons [doc id='1']. - **Intelligent Building Segment**: The largest and most profitable 2B segment is projected to achieve sales of US$10 billion by 2030, indicating a 15% CAGR. This growth is driven by share gains, import substitution, and solution expansion [doc id='2']. - **Data Center Cooling Market**: The current market size in China is approximately RMB15 billion, with expectations to grow to US$10 billion as the country shifts to cold liquid cooling technology, aligning with advancements in GPU chips [doc id='3']. Financial Performance and Projections - **Net Income Projections**: Adjusted net income is expected to grow from RMB33.72 billion in 2023 to RMB48.61 billion by 2027, with a slight dip in 2026 [doc id='9']. - **Earnings Per Share (EPS)**: EPS is projected to increase from RMB4.92 in 2023 to RMB6.36 in 2027, with a year-on-year growth rate of 13.6% in 2023 and a decline of 0.2% in 2026 [doc id='9']. - **Valuation Metrics**: The P/E ratio is expected to decrease from 16.09x in 2023 to 12.41x in 2027, indicating a more attractive valuation over time [doc id='9']. Trade-in Subsidies and Channel Strategy - **Trade-in Subsidies**: Expectations for 2026 include a budget similar to 2025, with a narrower focus on key appliance categories. The subsidy ratio may decrease from 20% in 2025, and eligibility will be limited to products with Energy Efficiency Level 1 [doc id='12']. - **DTC Channel Reform**: Midea has implemented channel reforms that enhance supply chain efficiency and profitability, incentivizing distributors to prioritize Midea products [doc id='13']. Investment Rationale - **Buy Rating**: Midea is rated as a Buy due to its dual focus on 2C and 2B segments, potential benefits from trade-in subsidies, and a strong track record of management and shareholder returns [doc id='11']. - **Risks**: Potential risks include an industry down-cycle in 2026, execution risks in 2B expansion, commodity price fluctuations, and regulatory challenges in overseas markets [doc id='27'][doc id='29']. Financial Health - **Strong Cash Flow**: Midea is expected to generate strong free cash flow, with projections of RMB51.59 billion in 2023, decreasing slightly in subsequent years but remaining robust [doc id='23']. - **Balance Sheet Strength**: The company maintains a strong balance sheet with net cash expected to increase from RMB10.21 billion in 2023 to RMB100.36 billion by 2027 [doc id='24']. Conclusion Midea Group is positioned for steady growth in both its consumer and commercial segments, supported by strategic initiatives in channel reform and product innovation. The company faces some risks but remains a strong investment opportunity in the appliance sector.