Midea Remains Undervalued; Steady Fundamentals to Support Share Price

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.