Midea Earnings: Strong Performance in Home Appliances Outweighed Robotics Weakness; Shares Cheap

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.