Midea: Initiating on H-Shares With HKD 91.10 Valuation, but We Lower A-Shares' Valuation by 5%

We initiated on Midea’s Hong Kong-listed shares with a HKD 91.10 per share fair value estimate. Still, we have lowered the A-shares’ fair value estimate to CNY 82.00 per share from CNY 86.00 as its Hong Kong IPO mildly diluted our valuation. Midea issued about 566 million new H-shares at HKD 54.80 per share, an over 20% discount to its A-share closing price of CNY 63.51 as of Sept. 13, 2024, with total proceeds accounting for around 6% of its market capitalization as of the same date. We retain our financial forecasts and narrow moat rating on Midea, given no change in its operations, and view both A-shares and H-shares as undervalued. We believe Midea’s margin expansion potential has not been reflected in current share prices. As Midea’s H-shares are not subject to the 30% foreign investors’ holding limit in the A-share market, we think overseas investors may prefer to accumulate H-shares.