20180606-中国银河国际证券-美的集团-000333.SZ-Riding_consumption_upgrade_19页_881kb

Midea [000333.CH] Summary

Core Content

Midea is a leading global home appliance manufacturer with a strong brand portfolio, extensive product range, and a vast distribution network. The company is positioned to benefit from the consumption upgrade trend in China and is expected to deliver a 26% earnings CAGR from 2017 to 2019. The report recommends a BUY rating with a 12-month target price of RMB 67, representing a 22% upside from the closing price of RMB 54.97 on June 5, 2018.

Investment Highlights

• Premiumization Strategy: Midea is launching a new domestic high-end brand in 2018, which is expected to raise average selling prices (ASPs) and improve margins.
• Air Conditioners as Earnings Driver: Air conditioners contribute 48% of gross profit and are expected to continue driving revenue and margin growth through ASP increases of RMB 300–400.
• International Business Growth: Exports account for 43% of total sales and 30% of gross profit. Midea is shifting from OEM/ODM to branded products, which should improve margins in the medium term.
• Robotics Segment Growth: The acquisition of Kuka and Toshiba is expected to increase the robotics segment's gross profit share to ~9% in 2018, up from 6% in 2017. This segment is projected to be a long-term profit engine.
• Valuation: The target price is based on a 16x multiple of 2019 earnings, which is considered attractive given the company's secure franchise and earnings growth above 20%.

Key Financial Projections (2016–2020E)

Premiumization to Drive Margin Expansion

• Midea is one of the top three home appliance manufacturers in China, with strong brand recognition and a broad product range.
• The company has acquired premium brands such as Toshiba, Electrolux, and Cuchen to enhance its brand image and move up the value chain.
• The new premium brand, expected to launch in Q3 2018, will initially target select product categories and eventually expand to all product lines.
• Premium products are priced at or above Haier's high-end Casarte line, which has shown strong growth in certain categories.

Air Conditioning Segment

• Air conditioners represent 45% of gross profit and are a key driver of earnings growth.
• Midea's AC business grew by +40% YoY in Q1 2018, with stable sell-in and end-user installations.
• The company expects full-year 2018 AC growth of ~20% YoY.
• Midea's ASPs are lower than Gree's, but a planned price increase of RMB 300–400 is expected to close the gap and improve margins.

Export Market

• Exports account for 43% of total sales and 30% of gross profit.
• Midea's international presence is extensive, with sales in over 200 countries and 12 overseas production facilities.
• The majority of exports are currently OEM/ODM products, with only 30% being branded. This is expected to change as Midea shifts to a more branded international strategy.

Robotics Segment

• Midea's robotics segment is expected to grow significantly due to the acquisition of Kuka (94.55% stake) and Toshiba (17.8% stake).
• Robotics is a new growth driver and diversifies the company's business.
• The segment's gross margin is expected to increase from ~14.5% in 2017 to ~21% in 2018, due to reduced PPA expenses.
• The long-term potential is supported by China's low robot penetration, rising wages, and aging population.

Risk Factors

• China Real Estate and AC Sales Slowdown: The residential AC market is highly volatile and dependent on weather and real estate trends.
• Price Hikes and Market Share: The price increase strategy could affect market share if not well-received.
• RMB Appreciation: Exports are primarily in USD, so RMB appreciation could reduce profitability.
• Integration Risks: The integration of Kuka and Toshiba, especially Toshiba, is still in progress.
• Commodity Price Volatility: Raw material costs (copper, steel) make up 85% of COGS, and price hikes may not fully offset cost increases.
• Interest and Investment Income: These have historically contributed to PBT but are subject to market fluctuations.

Company Background

• Founded in 1968 by He Xiangjian, Midea has grown from a small workshop to a Fortune Global 500 company.
• Midea Electric was first listed in 1993 and was later delisted in 2013. The current listed company, Midea Group (000333 CH), was formed through restructuring.
• Midea is controlled by He Xiangjian and his family, who indirectly own nearly 35% of the company.
• Xiaomi invested RMB 1.2 billion for a 1.3% stake in 2014, marking a strategic partnership that supports Midea's smart home ambitions.

Conclusion

Midea is well-positioned to benefit from the consumption upgrade in China and its international expansion. The company's strategy of premiumization, margin expansion, and M&A activity in the robotics sector supports its growth trajectory. Despite risks such as RMB appreciation and integration challenges, the report remains optimistic about Midea's long-term growth potential.