20180802-中国银河国际证券-美的集团-000333.SZ-MIDEA_GROUP_6页_337kb

Midea Group [000333.CH] Summary

Core Content Overview

Midea Group, a major player in the home appliances sector, is analyzed for its 2018 performance and future outlook. The report highlights the company's strong domestic demand in the first half of 2018, which supports full-year expectations. However, there are concerns regarding slower growth in certain segments, particularly KUKA and kitchen appliances. The impact of the US-China trade war and RMB depreciation on the company's financials is also discussed.

Main Points

• Sales Performance (2018 H1): Sales are expected to align with full-year projections, driven by robust domestic demand for air conditioners, refrigerators, and washing machines.
• Growth Projections:
  • HVAC: Expected to grow by ~40% YoY in 2018 H1.
  • Refrigerators and Washing Machines: Expected to grow by ~20% YoY.
  • Kitchen Appliances: Growth is in single digits due to cautious inventory management.
  • KUKA: Experiencing slower growth in Q2 due to the weak auto market.
• Trade War Impact: While the first round of US tariffs may affect a small portion of Midea's exports (~US$200-250m), the second round could impact an additional ~US$400m. However, the report suggests that these concerns are overblown.
• RMB Depreciation: Expected to benefit Midea's export sales, especially in 2019, due to improved price competitiveness. A 5% RMB depreciation is estimated to increase 2019 PBT by ~4%.
• Translation Gain: Midea holds significant net USD and Euro exposure, which could lead to a translation gain if the RMB weakens. However, the impact is minimal due to hedging of Euro debt.
• Valuation: Midea is currently trading at 11.8x 2019E PER, which is considered inexpensive. The target price is reduced to RMB63 from RMB67 due to a softer macroeconomic environment and delayed product launches.
• Financial Model:
  • Revenue Growth: Expected to grow at ~14% in 2018 and ~9% in 2019.
  • Profit Margins: Gross profit margin is projected to remain stable, while net profit margin is expected to improve slightly.
  • EPS: Expected to increase from RMB2.63 in 2017 to RMB3.91 in 2019.
• Investment Highlights:
  • The company is rated BUY, with a target price of RMB63 (+36%).
  • Midea's market capitalization is US$45,109m, with 6,566m shares outstanding and a 45% free float.
  • The company operates manufacturing plants in multiple countries, including Brazil, Vietnam, and others, which helps diversify its export base.

Key Financial Figures

Forex Impact

• Midea's forex exposure is estimated at ~RMB2.5bn.
• A 5% RMB depreciation against the USD and Euro is expected to result in a ~4% increase in 2019 PBT.
• A 10% depreciation could lead to a ~1% translation loss in 2018 PBT.
• The company's net finance and other costs are projected to decline in 2018 and 2019, with a positive impact on profitability.

Investment Considerations

• Valuation: The current PER of 11.8x is considered reasonable given the company's diversified business and growth potential.
• Growth Drivers: Strong domestic demand and RMB depreciation are key growth drivers.
• Risks: Macroeconomic slowdown, delayed product launches, and potential trade war impacts may affect future performance.
• Earnings Impact: The report adjusts 2019 earnings by ~6% due to the aforementioned factors.

Analyst Information

• Analysts: Jeff Dorr, An Zhang, Johnson Cheung
• Contact:
  • Jeff Dorr: (852) 3698 6323, jeffreydorr@chinastock.com.hk
  • An Zhang: (852) 3698 6293, zhangan@chinastock.com.hk
  • Johnson Cheung: (852) 3698 6275, johnsoncheung@chinastock.com.hk

Equity Rating Explanation

• BUY: Indicates that the share price is expected to increase by more than 20% within 12 months.
• SELL: Indicates a potential share price decrease of more than 20% within 12 months.
• HOLD: No clear catalyst, and the rating may be downgraded if no further positive signals are received.

Disclaimer

• The report is not intended for distribution to individuals or entities in jurisdictions where it may be illegal.
• No guarantees or warranties are made regarding the accuracy or completeness of the information.
• The report should be used in conjunction with the provided disclaimer.

Copyright

• No part of this material may be reproduced or redistributed without the prior written consent of China Galaxy International Securities (Hong Kong) Co., Limited.