Midea’s Q1 Net Profit Up 2% YoY, Exceeding Expectations; Maintains Buy Rating and RMB91.10 Target

Overview

This report provides UBS’s review and analysis of Midea Group’s first-quarter 2026 results. The key takeaway is that Midea achieved solid revenue and profit growth during the quarter, with overall performance meeting institutional and market expectations. Although there is a divergence between reported net profit and non‑GAAP net profit, the report attributes this to accounting differences arising from foreign‑exchange management practices rather than any underlying deterioration in operations. Given improvements in business mix, efficiency‑enhancing measures, and an active shareholder‑return plan (high dividends plus buybacks), UBS maintains its ‘Buy’ rating for Midea Group and sets a target price of RMB91.10.

Core views

In terms of financial performance, Midea Group reported RMB132 billion in operating revenue for Q1 2026, up 2% year over year; net profit attributable to shareholders was RMB13 billion, also up 2%. These results align with UBS’s and the market’s consensus expectations, demonstrating the company’s resilience in maintaining growth despite a high base. By business segment, domestic revenue is estimated to have increased by about 4% YoY, while overseas revenue rose by roughly 2%. On the 2B (enterprise‑end) side, Building Technology (primarily HVAC) revenue grew by 10%, and Robotics revenue accelerated to 12% growth (up from 8% for full year 2025), whereas Industrial Technology contracted by 12% due to the high base effect. Both 2C (consumer‑end) and 2B businesses posted single‑digit growth overall. Gross profit margin remained stable at 26% in Q1, essentially unchanged year over year. The report notes that product‑mix upgrades and productivity gains offset rising raw‑material costs and the risk of foreign‑exchange losses stemming from RMB appreciation. Regarding the significant discrepancy between net profit (+2%) and non‑GAAP net profit (−14%), the report explains that this stems from the company’s foreign‑exchange management strategy: changes in the fair value of foreign‑exchange hedging instruments were recorded as non‑recurring income. Consequently, focusing solely on non‑GAAP net profit during periods of volatile exchange rates may understate actual operational performance, whereas reported net profit better reflects true operating results. Strategically and in capital allocation, in response to rising raw‑material costs, Midea has adopted flexible pricing to protect market share, while simultaneously enhancing efficiency through DTC (direct‑to‑consumer) transformation, logistics cost reductions, inventory turnover optimization, and AI‑powered order forecasting. The DTC shift is expected to contribute one percentage point to 2026 operating margin. Meanwhile, the company’s share‑buyback program is progressing smoothly, with an annual target of RMB6.5–13 billion; to date, RMB2.7 billion has been spent, and all repurchased shares will be canceled upon approval by the shareholders’ meeting.

Analysis framework

UBS’s analytical framework rests on two pillars: isolating one‑off distortions to assess core operations, and anchoring valuation to shareholder returns. First, regarding the anomalous divergence between net profit and non‑GAAP net profit in the earnings report, analysts did not blindly rely on the latter but instead dissected the impact of foreign‑exchange hedging accounting, concluding that reported net profit is a superior metric for gauging current operational performance, thereby correcting potential market misinterpretations. Second, in valuation, they employed the sum‑of‑the‑parts (SOTP) method, factoring in the current macroeconomic environment and emphasizing Midea Group’s defensive qualities and attractiveness as a mature manufacturing giant, quantifying future EPS accretion from “high dividends plus buyback cancellations” to support its elevated target price.

Methodology notes

• Valuation MethodSOTP Segment Valuation

  Sum-of-the-Parts Valuation

  The report does not specify the exact multiples assigned to each segment but explicitly states that the target price is based on the SOTP model. This approach involves separately valuing the company’s various business segments (e.g., home appliances, robotics) and summing their values to arrive at an overall enterprise worth, suitable for diversified conglomerates.

• Company Fundamentals and Financial FrameworkFree cash flow analysis

  Shareholder Returns and EPS Dilution/Accretion Analysis

  The report pays particular attention to the impact of share buybacks on per‑share metrics. By calculating the scale of buyback funding and the cancellation mechanism, it quantifies the positive contribution to future EPS (1–2%), which is a critical dimension for assessing the true profitability of mature companies.

Asset mapping & comparison

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

• Midea Group (000333.SZ)

  Direct beneficiary. Demonstrates robust earnings growth and offers dual shareholder‑return drivers: generous dividends and share buybacks with cancellation.

  Strengths

  Accelerated growth in 2B businesses (robotics, building technology); DTC transformation enhances operational efficiency; foreign‑exchange hedging capabilities bolster profit stability.

  Weaknesses

  Industrial Technology segment temporarily pressured by a high base; rising raw‑material costs pose a potential challenge to gross margins.

  Comparison

  Compared to pure C‑end appliance players, Midea boasts a more balanced ToB business mix and stronger cyclical resilience.

  Risks

  Tightening real estate policies could dampen appliance demand; sharp RMB volatility may lead to foreign‑exchange losses; slower global robotics market growth.

Key data

• 2026 Q1 Operating RevenueRMB132 billionUp 2% YoY
• 2026 Q1 Net Profit Attributable to ShareholdersRMB13 billionUp 2% YoY
• 2026 Q1 Gross Profit Margin26%Stable year over year
• Robotics Revenue Growth Rate+12%Accelerated from +8% in 2025
• Total Share Buyback Plan AmountRMB6.5–13 billionYear-to-date spending of RMB2.7 billion
• Target PriceRMB91.10Equivalent to 15x 2026 PE
• 2026 Expected Dividend Yield~6%An important component of shareholder returns

Impact & implications

For investors, this report confirms Midea Group’s earnings resilience and risk‑mitigation capabilities amid a complex macroeconomic environment. Despite pressures from rising raw‑material costs and currency fluctuations, the company has managed to maintain stable gross margins through pricing adjustments, efficiency improvements, and product‑mix optimization. More importantly, the clear share‑buyback cancellation plan and substantial dividend yield provide a strong margin of safety and downside protection. The report suggests that the market may have overemphasized the decline in non‑GAAP net profit; in reality, core businesses remain healthy and expanding, with high‑value B‑end segments (robotics, building technology) emerging as new growth engines.

Risks

• Tightening regulatory policies in the real estate sector could reduce appliance demand
• Fluctuations in the RMB exchange rate might result in foreign‑exchange losses
• A slowdown in global robotics market growth

What to watch

• Subsequent trends in raw‑material prices and execution of the company’s pricing strategy
• The concrete impact of the DTC transformation on full‑year operating margin
• Progress of the share‑buyback program and the actual EPS accretion from final cancellations
• Changes in global robotics market conditions