Midea Group Co Ltd._ Research Tactical Idea

Summary of Midea Group Co Ltd. Research Call Company Overview - Company: Midea Group Co Ltd. - Ticker: 000333.SZ, 000333 CS - Market Cap: Rmb534,550.9 million - Current Share Price: Rmb75.93 (as of January 7, 2025) - Price Target: Rmb94.00 - 52-Week Range: Rmb83.67 - Rmb54.11 - Average Daily Trading Value: Rmb2,164 million - Stock Rating: Overweight - Industry View: In-Line Key Points and Arguments 1. Share Price Outlook: The share price is expected to rise relative to the country index over the next 45 days, indicating a positive short-term outlook for Midea [2][5][6] 2. Consumer Goods Trade-in Program: The National Development and Reform Commission (NDRC) announced a 2025 consumer goods trade-in program, which includes an increase in subsidized air conditioning units. This is expected to benefit leading home appliance companies like Midea [2] 3. Valuation Metrics: Midea-A/H shares are trading at approximately 13x 2025 estimated P/E, which is slightly lower than Midea-A's average since 2017 but higher than Midea-H's average since its listing in September 2024. This valuation is considered attractive given an estimated low-teen percentage EPS CAGR over 2024-2026 [2][6] 4. Acquisition Plans: Midea Group is in the process of acquiring a 58% equity stake in Toshiba Elevator (China) Co., Ltd. and Toshiba Elevator (Shenyang) Co., Ltd. through its subsidiary, Hainan Midea Building Technology Co., Ltd. This acquisition is seen as a strategic move to enhance Midea's market position [4] 5. Earnings Visibility: The valuation methodology applied includes a sum of the parts (SOTP) approach, with home appliances valued at Rmb88/share based on a 2024 estimated P/E of 16x, reflecting high earnings visibility and potential upside from better growth in the To-business segment [9] 6. Risks: - Upside Risks: Better-than-expected rebound in the Chinese property market, less competition from key competitors, and successful M&A transactions [13] - Downside Risks: Fiercer competition, unfavorable foreign exchange movements, raw material price changes, and unsuccessful M&A transactions [13] Additional Important Information - Analyst Certification: Analysts Hildy Ling and Lillian Lou certify that their views about Midea Group are accurately expressed and have not received compensation for specific recommendations [18] - Investment Banking Relationships: Morgan Stanley has received compensation for investment banking services from Midea Group within the last 12 months, which may present a conflict of interest [20][21] - Market Context: The research is part of a broader analysis of the China/Hong Kong consumer sector, indicating that Midea is positioned within a competitive landscape that includes other major players [6][69] This summary encapsulates the critical insights and data points from the research call regarding Midea Group, highlighting its market position, strategic initiatives, and potential risks and opportunities.