Moment of Home Appliance Re-rating: Top Pick is Midea, Bullish on Overseas Expansion and B2B

Overview

J.P. Morgan released an in-depth report on China's home appliances industry, proposing a core view on sector valuation restructuring: China's home appliances should no longer be simply viewed as a domestic consumer goods industry driven by subsidies and property cycles, but re-priced as a hybrid of "Domestic Cash Cow + Overseas Growth Engine + B2B Industrial Tech Options." The report initiates coverage of 6 core companies, top picking Midea Group, while being bullish on Haier Smart Home and Supor's defensiveness and growth, holding neutral views on Gree Electric and Robam Appliances, and explicitly advising to avoid Ecovacs. The report believes that despite short-term pressures from subsidy reductions and cost increases, industry leaders possess Alpha return potential to traverse cycles thanks to global layouts and B2B business expansion.

Core views

Sector Re-rating Logic and Macro Background: The report points out that the market still applies old frameworks (subsidies, replacement cycles, profit margins) to the home appliance sector, suppressing valuations around 10x P/E, ignoring structural changes. Actually, domestic B2C business has become a stable cash flow foundation (Big 3 hold approx 60% share and core profit pool), overseas OBM business is becoming a growth engine (overseas market size approx 3x domestic, but Big 3 only hold 16% share), and B2B industrial tech business is the key driver for future valuation multiple expansion. Although domestic demand expected to slow in 2026-2027, this is not the source of Alpha; true excess returns come from identifying which companies can use domestic cash flows to build global share and B2B capabilities. Stock Divergence and Recommendation Logic: Midea Group listed as Top Pick (Target Price 105 RMB), due to combined earnings defensiveness and re-rating potential, most stable B2C business and B2B share already near 30%, market hasn't given B2B reasonable valuation yet. Expected as B2B profits release, valuation could lift from 12x to 15x. Haier Smart Home (A/H both OW) seen as "bad news priced in", US tariff impact digested, non-US regions strong growth and margin improvement, supply chain restructuring, clear earnings repair expectation. Supor (OW) relies on parent SEB OEM orders for guaranteed profitability and high dividends, best combination of quality and return among small appliances. In contrast, Gree Electric (Neutral) constrained by mismatch between premium pricing and consumption downgrade trend, insufficient marketing investment harms long-term growth; Robam Appliances (Neutral) significantly dragged by property, overseas mergers still uncertain; Ecovacs (UW) faces triple profit squeeze of rising BOM costs, intensified competition preventing price hikes, loss of floor cleaner shares, net profit expectations 17% lower than consensus, risk of valuation downward revision. Key Controversies and Fundamental Judgments: For five major controversies, clear judgments given. Regarding cost pass-through, expect 2Q26 is petrochemical cost inflation stress test period, baseline scenario Big 3 gross margin slightly drop 0.5-1 percentage points, if leaders stabilize margins, "mature category + profit compression" bear logic refuted. Regarding subsidy reduction, believe 2026 demand slight decline but soft landing, no cliff fall, 2027 regardless of subsidy demand stabilize. Regarding overseas growth, emphasize trade friction actually strengthens Chinese leader cost advantage, overseas competitors forced to raise prices due to inefficient supply chains, providing window for Chinese firms to grab share. Regarding new entrants (Xiaomi/Dreame), believe under stock game leaders unwilling to launch full price wars, more tactical responses. Regarding B2B Second Curve, point out commercial HVAC, liquid cooling, heat pumps etc. though early stage, already possess technological homology, core for long-term valuation reshaping, where Midea layout in B2B field clearest and possesses scale effects.

Analysis framework

The report adopted a "Sum of the Parts Valuation + Lifecycle Benchmarking" analytical framework to demonstrate the home appliance sector's re-rating logic. At the valuation level, Midea Group uses SOTP method, valuing B2C business at historical average 12x P/E, while B2B business (Building Tech, Robotics, etc.) benchmarks global industrial giants (Trane, Daikin, ABB) giving 27x P/E, thus quantifying valuation elasticity from B2B business. At industry positioning level, employed product lifecycle and cross-border benchmarking methods, comparing China home appliance leaders' current stage to Siemens, Hitachi, etc., development paths, i.e., starting from consumer electronics, gradually shedding low-margin businesses, transforming into high-value industrial tech platforms, arguing B2B business is not just revenue supplement, but key anchor for valuation system switch. Additionally, by constructing proprietary raw material cost index and detailed cost pass-through calculation model, quantified analysis of 2Q26 cost shock's specific impact on gross margins, enhancing credibility of short-term earnings forecast.

Methodology notes

• Valuation MethodSOTP Sum of Parts Valuation

  Value diversified group companies by selecting different valuation multiples separately for business segments and summing up

  The report adopted this method for Midea Group, valuing mature B2C home appliance business according to traditional home appliance valuation (12x P/E), while high-growth B2B business benchmarks global industrial tech giants giving higher valuation (27x P/E), thereby more accurately capturing value re-rating brought by business structure transformation, avoiding single PE undervaluing emerging business potential.

• Competition and Strategy FrameworkProduct life cycle

  Judge enterprise current stage and valuation evolution referring to global industrial giant development paths

  The report analogized development trajectory of China home appliance leaders (like Midea) to Siemens, Hitachi etc., pointing out they are at critical period transforming from consumer electronics to industrial tech. This methodology helps investors understand why cannot view issue solely from home appliance cyclical stock perspective, but should pay attention to valuation center shift brought by B2B business share increase.

• Industry/Industrial Analysis FrameworkCost curve analysis

  Construct proprietary raw material cost index and calculate cost pass-through ability

  The report did not simply rely on macro commodity prices, but constructed dedicated cost index for home appliance manufacturing, combined inventory cycle (3 months) to precisely calculate 2Q26 cost shock timing and magnitude. Meanwhile by breaking down price hikes, negotiation, efficiency improvement means, quantified evaluating enterprise cost pass-through ability, making short-term earnings forecast more granular.

• Industry/Industrial Analysis FrameworkSupply-demand framework

  Distinguish different competition logics between domestic stock game and overseas incremental market

  The report defined domestic market as low-growth high-cash-return stock market, focus on share consolidation and profit defense; while overseas market defined as structural growth market, focus on OBM brand going global and share pillaging. This dichotomy avoids measuring all businesses with single demand indicator, highlighting importance of overseas expansion capability for valuation.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• Midea Group (000333.SZ)

  Industry Top Pick, combining earnings defensiveness and B2B re-rating potential

  Strengths

  B2C business most stable, overseas OBM growth fast, B2B business (Building Tech/Robotics) share high and growth leading, management execution strong

  Weaknesses

  B2B business profitability still needs verification, organizational complexity high may drag transformation efficiency

  Comparison

  Compared to Haier, B2B layout earlier and larger scale; Compared to Gree, overseas and B2B diversification more successful

  Risks

  B2B growth miss, domestic demand significant decline, cost pass-through failure, exchange rate volatility

• Haier Smart Home (600690.SH / 6690.HK)

  Overseas OBM Leader, bad news priced in, earnings repair imminent

  Strengths

  Global largest home appliance OBM brand, non-US regions growth strong, supply chain restructuring lowers tariff risk, shareholder return ratio high

  Weaknesses

  US business short-term still dragged by tariffs, B2B business scale small

  Comparison

  Overseas brand power better than Midea, but B2B transformation progress lags behind Midea; Valuation discount compared to Midea

  Risks

  US tariff escalation, Europe recovery miss, exchange rate risk, H-share liquidity discount widening

• Gree Electric (000651.SZ)

  Neutral Rating, high dividends provide cushion but lack growth catalyst

  Strengths

  Air conditioning field brand barrier high, cash flow abundant, dividend yield plus buyback total return over 11%

  Weaknesses

  Premium pricing mismatches consumption downgrade trend, insufficient marketing investment leads to share loss, diversification progress slow

  Comparison

  Domestic air conditioning share still leading but eroded, overseas and B2B layout significantly weaker than Midea Haier

  Risks

  Domestic share continuous loss, sub-brand cannibalizes main brand profit, dealer relationship deterioration

• Supor (002032.SZ)

  Small Appliance Top Pick, Bond-like Attributes, High Earnings Certainty

  Strengths

  Parent SEB OEM orders guarantee profit floor, cost pass-through mechanism complete, ROE highest among global home appliances, dividend yield leading

  Weaknesses

  Domestic small appliance growth sluggish, highly dependent on SEB affiliated transactions

  Comparison

  Earnings stability better than Ecovacs etc. pure domestic small appliance companies, valuation premium reasonable

  Risks

  SEB cuts orders, petrochemical cost unexpected rise, domestic competition intensifies eroding gross margin

• Ecovacs (603486.SH)

  Industry Avoidance (Top Avoid), Valuation Pressured under Triple Profit Squeeze

  Strengths

  Robot vacuum track long-term penetration still has space, new categories (lawn mowers etc.) have exploration

  Weaknesses

  BOM cost surge unable to pass-through, Dreame etc. competitor price war intense, floor cleaner share rapid loss, low dividend ratio

  Comparison

  Net profit margin forecast significantly below consensus, valuation lacks safety margin, risk-reward ratio poor

  Risks

  Price war continues, raw materials costs remains high, new category ramp-up miss, overseas expansion blocked

• Robam Appliances (002508.SZ)

  Neutral Observation, Waiting for Overseas M&A or Property Stabilization Signals

  Strengths

  Kitchen Appliance Duopoly One, gross margin maintains high levels, cash status good

  Weaknesses

  Strongly bound property post-cycle, 2026 National Subsidy not included kitchen appliances, overseas M&A targets and synergy effects unclear

  Comparison

  Anti-cycle ability weaker than white appliance leaders, valuation reflects pessimistic expectations but lacks upward catalyst

  Risks

  Property sales continuous slump, M&A failure or premium too high, MQ sub-brand dilutes profit

Key data

• Big 3 Overseas Market Share16%Significant space for improvement compared to domestic 60%+ share, overseas market TAM approx 3x domestic
• Midea B2B Revenue Mix (2026E)Approximately 30%Market still values as pure home appliance stock, B2B business not fully priced
• 2Q26 Big 3 Gross Margin Change Forecast-0.5 to -1.0pptPetrochemical cost inflation stress test period, baseline scenario leaders can basically hedge via price hikes etc.
• Ecovacs FY26E Net Profit Margin Forecast8.0%Significantly lower than market consensus 9.6%, implied net profit 17% below consensus
• Midea Target P/E (B2B Part)27xBenchmarking Trane, Daikin, Hitachi, ABB etc. global B2B peers average level
• Haier Non-US Operating Profit Growth (FY26-28E CAGR)16%Europe and emerging markets growth strong, offsetting US tariff negative impact

Impact & implications

For home appliance sector, report believes current is "Quality Adjusted High-Quality Entry Point", sector P/E at CSI300/HSI bottom quartile, while ROE and dividend yield at top quartile, safety margin relatively high. For specific companies, Midea Group's B2B transformation success, potentially achieve switching from home appliance stock to industrial tech stock valuation system, bringing Davis Double Play; Haier Smart Home's overseas supply chain restructuring and margin repair will become short-term stock price catalyst; Supor's high certainty and high dividends makes it defensive allocation first choice. Conversely, Ecovacs' profit deterioration may lead to valuation further downward revision, need to guard against earnings miss risk. Overall, investment home appliance stock logic has shifted from gambling domestic property post-cycle and subsidy policies, to selectively selecting composite leaders with global operation capability and second growth curve.

Risks

• Cost pass-through below expectation: If 2Q26 petrochemical cost inflation cannot be hedged via price hikes etc., gross margin decline magnitude may exceed baseline assumption
• EU Potential Tariff Risk: If EU treats white goods or heat pumps as sensitive products adding tariffs, will impact overseas profit margins and market sentiment
• Exchange Rate Volatility Risk: RMB appreciation 1% vs USD, Midea/Haier/Ecovacs/Supor net profit possibly damaged 2-4%
• B2B Execution Risk: B2B business requires different capability from B2C (project-based/customization/service network), if only revenue grows not profit, valuation re-rating will fail
• Domestic Demand Unexpected Decline: If 2027 subsidy not continued and forward demand overdrafted severely, retail decline may widen

What to watch

• 2Q26 Financial Report Gross Margin Performance: Key window verifying leader cost pass-through ability, if stabilizing confirms earnings bottom
• Midea B2B Business Revenue and Profit Growth: Track whether Building Tech, Robotics etc. reach critical scale needed for re-rating
• Haier US Business Margin Repair Progress: Watch supply chain restructuring effect and industry price hike implementation status
• Robam Appliances Overseas M&A Announcement: Whether substantive progress and transaction clause details within coming months
• 2027 Trade-in Policy Direction: Whether subsidy continues and scope adjusts, impacting domestic demand expectation
• EU-China Home Appliances/HVAC Product Trade Policy: Whether new tariffs or non-tariff barriers issued