Midea Remains the Top China Home Appliance Pick; the Next Re-rating Hinges on B2B Delivery

Overview

Based on feedback from surveys of more than 50 mainland Chinese investors, this report finds that the home appliance sector remains favored because it offers scarce high yields, defensive earnings, cash returns, and limited near-term downside risk to expectations. Midea is the focal point of discussion, with its investment case shifting from a defensive holding to the next stage of valuation re-rating.

Core views

Midea's diversified portfolio, strong free cash flow, and shareholder returns underpin its core-holding status. The report argues that a valuation re-rating requires B2B to evolve from a diversification narrative into a verifiable value driver: demonstrating market leadership, margin improvement, and earnings contribution in key verticals. HVAC is viewed as a stronger B2B business, while KUKA, liquid cooling, and new energy still face questions over competitive advantage and margin validation.

Analysis framework

The report combines investor surveys, retail sales data, raw-material prices and inventory pass-through cycles, regional revenue exposure, and industry demand trends to assess valuations, earnings resilience, and catalysts for home appliance companies.

Methodology notes

• Valuation methodsSum-of-the-Parts Valuation

  SOTP-implied target valuation

  The report cites Midea's SOTP-implied target P/E of 15x and views it as an interim milestone rather than the endpoint of valuation re-rating.

• FundamentalsEarnings Resilience and Cash Return Assessment

  Free cash flow, dividend yield, and downside risk to earnings

  The defensive characteristics of leading home appliance companies are assessed jointly through free cash flow, shareholder returns, valuation, and cost pressures.

Asset mapping & comparison

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

• Midea Group-A (000333.SZ)

  Top sector pick and default long allocation

  Strengths

  Diversified business portfolio, strong free cash flow, shareholder returns, earnings resilience, and potential valuation catalysts from B2B businesses.

  Weaknesses

  Leadership, margins, and competitive advantages in certain B2B verticals have not yet been fully validated.

  Comparison

  The report ranks Midea (Overweight) ahead of Haier H/A (Overweight), Gree, Supor, Robam, and Ecovacs.

  Risks

  Persistently weak domestic demand, subsidy-driven demand pull-forward, rising raw-material costs, and B2B execution below expectations.

• Haier Smart Home Co Ltd-A (600690.SS) / Haier Smart Home Co Ltd-H (6690.HK)

  Potential catch-up trade

  Strengths

  European operations offer brand-upgrade opportunities; U.S. demand and price competition are showing marginal improvement.

  Weaknesses

  It has not yet become a consensus core holding, and the U.S. business recovery remains gradual.

  Comparison

  Rated Overweight, but ranked behind Midea in investor preference.

  Risks

  U.S. industry demand, tariff costs, the pace of margin recovery, and forecast uncertainty.

Key data

• Midea valuation and dividend yield12-13x P/E; dividend yield above 7%The report considers this level attractive for a high-quality compounder.
• Midea SOTP-implied target valuation15x P/EDefined as an interim valuation re-rating milestone.
• Copper priceApproximately Rmb100k/tonneRemained elevated in 1Q26 and 2Q26 and rose slightly in 3Q26; industry leaders typically hold about three months of copper inventory.
• Raw-material impact on gross marginApproximately 1-1.5 percentage pointsThe report estimates the erosion of home appliance leaders' gross margins from raw-material inflation in 2Q.
• European revenue exposureApproximately 13% of Midea and Haier Group sales in FY25Air-conditioning operations are estimated to account for only 2-4% of group sales, limiting the near-term boost from heatwaves.
• U.S. industry demand1Q26 YoY -7%; 2Q26 YoY -3%The narrowing decline in industry sales indicates initial stabilization.
• Haier U.S. business marginExpected to recover to 6-7% by FY28EThe recovery path is gradual and material forecast risk remains.

Impact & implications

In the near term, improving domestic sales off a low base and cost pressure no higher than in 2Q should help sustain market confidence in holding Midea. Medium-term valuation upside depends on segment-level validation of the B2B business; if evidence strengthens, Midea could evolve from a high-quality defensive name into a valuation-expansion story.

Risks

• Sustained weakness in China's domestic home appliance demand, or subsidy-driven demand pull-forward becoming apparent in 2027-2028.
• Rising copper and plastic prices exerting greater pressure on gross margins.
• Uncertainty over the size of the European HVAC market, regulations, and tariff risks.
• Midea's B2B businesses failing to provide sufficient evidence of leadership and margin improvement.
• Haier's U.S. business demand and operating margin recovering more slowly than expected.

What to watch

• Whether the domestic sales recovery in 3Q26 meets expectations.
• Whether raw-material cost pressure is below, or at least no higher than, that in 2Q26.
• Evidence on orders, margins, and market leadership in Midea's HVAC, KUKA, liquid cooling, and new energy businesses.
• The persistence of sales momentum and improvement in brand awareness for Chinese home appliance brands following European heatwaves.
• Progress in Haier's U.S. sales decline, price competition, tariff expenses, and operating margin recovery.