Midea: Well Positioned to Navigate Macroeconomic Headwinds; Shares Undervalued

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.