Midea Group's 2H26 outlook improves, with upside potential in shareholder returns
AI summary card
Midea Group's 2H26 outlook improves, with upside potential in shareholder returns
BofA reiterates its Buy rating on Midea Group, believing that revenue and core profit margin are likely to catch up and improve in 2H26, while 2B, overseas, and OBM businesses support medium- to long-term growth, and investment gains may further enhance dividend or buyback returns.
- The 2Q26 preview indicates revenue is expected to grow by low- to mid-single digits, with overseas and 2B contributing most of the incremental growth, while domestic 2C may still be a drag.
- Company guidance calls for mid- to high-single-digit FY26 revenue growth and broadly stable core profit margin; BofA believes progress in 1H26 is somewhat slow, but there is room to catch up in 2H26.
- The 2C business is expected to benefit from a lower base, fading impact from front-loaded domestic trade-in subsidies, and recovering overseas order cadence, while OBM is expected to maintain double-digit growth.
- The 2B business is expected to grow by mid-single digits in 1H26, with a similar or faster trend in 2H26; Energy Storage and KUKA are expected to outperform the average 2B growth rate.
- Fair value changes in investments in memory companies may contribute gains in 2Q/3Q26, and monetization after the 2027 lock-up expiry may be used for special dividends or other shareholder returns.
Report interpretation
Overview
This report is BofA's company research and 2Q26 earnings preview for Midea Group's H shares and A shares. The core judgment is that although the operating pace in 1H26 may lag full-year guidance, 2H26 is likely to improve with support from base effects, costs, SG&A control, 2B, and overseas businesses; meanwhile, high dividends, buybacks, and potential monetization of investment gains support shareholder returns.
Core views
BofA reiterates its Buy rating with three main pillars: first, improving revenue and margin outlook in 2H26, with the 2C business likely to recover under the influence of base effects and demand timing, while 2B maintains solid growth; second, diversification in 2B and overseas businesses reduces reliance on weak China macro conditions and supports long-term growth and valuation; third, the company maintains solid shareholder returns, including a 100% payout ratio including buybacks, and potential monetization of investment gains may bring special dividends or other upside in returns.
Analysis framework
The report uses earnings preview, business trend breakdown, margin driver analysis, and valuation cross-checking. Operationally, it breaks down drivers such as 2C, 2B, overseas, OBM, Energy Storage, and KUKA; financially, it tracks revenue, core NPAT, EPS, dividends, free cash flow, and margins; on valuation, it uses a 50/50 blend of PE and DCF for H shares, and derives the A-share target price from the H-share target price.
Methodology notes
The H-share target price is derived from a 50/50 blend of PE and DCF
BofA's 101.60 HKD target price for Midea's H shares comes from a 50/50 blended valuation of PE and DCF; the DCF value is 115 HKD, assuming WACC of 11.1%, beta of 0.9, and a terminal growth rate of 2%; the PE value is 88.2 HKD, based on 13x 2026E P/E.
The A-share target price is based on the H-share target price plus a 5% premium
The 96.00 CNY target price for A shares is derived by applying a 5% premium to the H-share target price, with reference to Haier Smart Home's historical A/H premium of around 10% and Midea's own A/H premium narrowing to close to zero since 2025.
A standardized framework of business performance, earnings quality, and valuation metrics
The report cites BofA Global Research's standard iQmethod metrics, including ROCE, ROE, operating margin, earnings growth, free cash flow, cash realization ratio, asset replacement ratio, net debt-to-equity ratio, interest coverage, as well as PE, PB, dividend yield, free cash flow yield, and EV/Sales.
Asset mapping & comparison
Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).
- Midea Group H share 0300.HKCore covered target
- Strengths
- Buy rating, target price 101.60 HKD; improving operations in 2H26, diversification in 2B and overseas businesses, and strong shareholder returns are the main positives.
- Weaknesses
- Progress in 1H26 may lag full-year guidance, domestic 2C may decline in 2Q26, and some 2B subsegments in FY26 are below historical trends.
- Comparison
- The PE value is based on 13x 2026E P/E, broadly in line with Hong Kong-listed China consumer peers and global home appliance peers, and implies about a 30% premium over Hong Kong-listed white goods peers.
- Risks
- Industry downturn, fading subsidies, tariffs, weak demand, execution of 2B expansion, raw materials, competition, overseas regulation, FX, and key personnel risks.
- Midea Group A share 000333.SZMapped A-share target of the same company
- Strengths
- Buy rating, target price 96.00 CNY; the A-share target price is derived by applying a 5% premium to the H-share target price.
- Weaknesses
- The A/H premium has narrowed, so the target price is sensitive if H shares are re-rated or the A-share premium assumption changes.
- Comparison
- The A-share target premium references Haier Smart Home's historical A/H premium of around 10% and Midea's own A/H premium being close to zero in 2025.
- Risks
- The same business risks as H shares, while also being affected by A-share market risk appetite and A/H premium volatility.
- KUKAMidea Group's industrial robotics business and one of the supports for 2B growth
- Strengths
- The report states KUKA is one of the world's four major industrial robot companies and is expected to outperform the average 2B growth rate.
- Weaknesses
- Overall 2B may be dragged by Industrial Solution and the high base in Intelligent Building.
- Comparison
- Relative to the 2B average, KUKA and Energy Storage are considered more resilient in growth.
- Risks
- Industrial demand, execution, competition, and overseas regulatory risks.
Key data
- H-share rating and target priceBUY; target price 101.60 HKD; current price 92.25 HKDEquivalent to approximately 10.1% upside in share price.
- A-share rating and target priceBUY; target price 96.00 CNY; current price 82.71 CNYEquivalent to approximately 16.1% upside in share price.
- 2026E adjusted net profit46,555 mn CNYThe report estimates adjusted net profit of 38,537, 43,945, 46,555, 50,606, and 54,339 mn CNY for 2024A through 2028E, respectively.
- 2026E EPS6.11 CNY2026E EPS is expected to grow 5.8% YoY, with 2027E and 2028E growing 9.3% and 7.8%, respectively.
- 2026E dividend yield6.03% for H share; 5.82% for A-share valuation tableThe report emphasizes solid shareholder returns and a high payout ratio including buybacks.
- 2026E ROE20.4%Return on equity remains at around 20% or above.
- 2026E operating margin10.5%The report expects 2H26 margin to be supported by a low base, lower plastic costs, and tight expense control.
- H-share valuation method50% PE + 50% DCFDCF value 115 HKD; PE value 88.2 HKD; blended target price 101.60 HKD.
- Key DCF assumptionsWACC 11.1%; beta 0.9; terminal growth 2%Used for H-share DCF valuation.
- H-share market data52-week range 75.60 HKD-95.00 HKD; free float 69.7%Stock data disclosed in the report tables.
Impact & implications
This report carries a positive investment implication for Midea Group: if the catch-up in revenue and margin materializes in 2H26, the market may reassess the visibility of its FY26 growth; if investment gains are monetized after the 2027 lock-up period and returned to shareholders, the attractiveness of dividends and total returns may strengthen further. On valuation, BofA believes Midea deserves about a 30% premium versus Hong Kong-listed white goods peers due to its industry leadership and more stable growth.
Risks
- After the high base from 2026 trade-in subsidies, the industry may enter a downturn cycle.
- Tariffs and changes in overseas trade policy may affect overseas orders, costs, and demand.
- Weak home appliance demand may drag down 2C revenue, especially in the domestic market.
- There are execution risks in 2B expansion, while the high base in Industrial Solution and Intelligent Building may suppress growth.
- Commodity price fluctuations may affect gross margin.
- Intensifying industry competition may compress pricing and margins.
- Overseas regulation, tariffs, and FX risks may affect global operations.
- Key personnel risks may affect operating stability.
- Investment gains may be offset by impairment charges, and related investments are subject to a one-year lock-up period.
What to watch
- Whether 2Q26 revenue, core NPAT, and reported NPAT are in line with the preview direction.
- Whether domestic 2C and overseas 2C recover in 2H26 after base effects improve.
- Whether OBM maintains double-digit growth.
- Whether 2B business growth stays at mid-single digits or faster, especially Energy Storage and KUKA performance.
- Whether declines in raw material costs such as plastics translate into margin expansion in 2H26.
- Whether SG&A and cost control can continue to support core profit margin.
- Fair value gains from investments in memory companies, the extent of impairment offsets, and monetization plans after the 2027 lock-up period.
- Shareholder return policies such as buybacks, dividends, and potential special dividends.
- Changes in the A/H premium and whether H shares can maintain their valuation premium relative to Hong Kong white goods and consumer peers.