MIDEA GROUP(300.HK)：GOOD PROGRESS IN DIVERSIFYING AND KEEPING SHAREHOLDER RETURN-格隆汇

机构：中银国际
研究员：Tony LI/Penny PENG

　　Midea achieved a 9% YoY revenue growth and a 14% YoY NP growth in 4Q24, in line with market expectations. This shows Midea has demonstrated good progress in most markets and segments, and its reliance on China’s consumer business has gradually reduced. While the uncertainties related to overseas business have heightened under the threats of US tariffs, we expect such risks could be partly offset by strong expansion in emerging markets, and continuous market share gain through its industry-leading R&Ds. Midea also raised dividend payouts and announced A-share buyback schemes, which we see supportive to shareholder returns. Maintain BUY.
　　Key Factors for Rating
　　4Q24 earnings in line as most segments remained solid. Midea’s 4Q24 achieved a 14% YoY of NP to RMB6,838m, in line with market expectations. The company has demonstrated good progress of lifting its margin in 4Q24, as GPM slightly expanded to 24.65% (4Q23: 24.59%) while OPM expanded 1.2ppts YoY to 9.3%. This shows that despite some pressure in some businesses such as robotics, Midea still managed to achieve better profitability thanks to: (i) product mix upgrade in China under the replacement subsidy scheme; (ii) improving economies of scale of its overseas OBM business, and (iii) optimisation of its management process through digitisation and AI.
　　OBM business overseas may continue to shine in 2025. In 2024, revenue growth from overseas (+12% YoY) outperformed China (+7.7% YoY), and we expect such trend would continue. While Midea may offset some weakness of China business in 2H25 with initiatives such as stronger DTC channels, we see that Midea has reached the takeoff stage for its OBM business overseas, as Midea has gained more market share in emerging markets in 2024 thanks to better brand recognition. While the threats of US tariff could potentially drag the margins of Midea, we expect Midea would still manage to absorb such cost with its global manufacturing network. Hence, we expect overseas revenue would continue to deliver double-digit growth in 2025.
　　Decent shareholder return plan after its H-share listing. Midea raised the dividend payout from 60.9% in 2023 to 64.3% in 2024, which we see a positive sign to promote shareholder return. In the meantime, it also announced the plan to conduct share buybacks for its A shares. The amount could be up to RMB10bn and not less than RMB5bn, which is equivalent to 0.65% to 1.31% of the total outstanding shares. We believe these two are positive signs as the company could return more cash to shareholders after it raised RMB324bn from the H- share IPO in Sept 2024.
　　Key Risks for Rating
　　Weaker-than-expected demand for home appliances and HVAC; higher material costs; global trade tensions, supply chain disruptions, concentration of revenue from China, and technological risks related to B2B business.
　　Valuation
　　We cut our FY25-26 EPS forecasts by 9%/8% after the 4Q24 earnings, and to reflect: (i) the impact of lower margins due to US tariffs, and (ii) weaker sales in mainland China since early 2025 as the demand under the subsidy scheme started to taper.
　　Our target price is lowered to HK$87.9, based on 15x 2025E P/E (unchanged).
　　Maintain BUY as we remain positive on Midea’s capability on delivering growth through continuous innovation in both B2C and B2B businesses. Aside from the initiatives to boost shareholder return, we also see Midea could be a frontrunner of developing robotics and humanoid robots, which could also be supportive to its valuation.