Company Analysis
Midea Group (000333 CH/Buy) Robotics slow to take off
> Robotics slow to take off

Maintain Buy

Gross margin to contract due to intensifying competition; cut TP

• We adjusted down our 2021-23 EPS forecasts for Midea Group (Midea) by an average of 12%, reflecting margin compression.

• We cut our target price to CNY120 (from CNY150), which is based on a P/E of 30x our 2022F EPS.

• Market expectations appear to have been sufficiently adjusted downward, with the stock down 26% YTD. As such, we believe valuation has become attractive.


Key updates

Home appliances: Back on pre-pandemic growth trajectory

• For 2021, we forecast home appliance revenue to grow 13.3%, with HVAC and consumer appliance revenue rising 13.5% and 13.0%, respectively.

• Demand for home appliances should rise steadily on the back of government support and upcoming replacement cycles.

• We see Midea’s home appliance revenue expanding at a CAGR of 10.6% in 2021-23, supported by its strong market dominance and brand reputation.

Robotics: Yet to gain ground in China

• Midea’s robotics business (Kuka) has yet to gain meaningful share in the Chinese market.

• We expect 2021 order growth to be slower than that of rival Fanuc (+42% YoY for Midea vs. +99% YoY for Fanuc).

• In Europe and North America, the company appears to be losing share to Fanuc and ABB.

• We think it will take time for the company to see meaningful acquisition synergies in China.

Revising down earnings estimates on margin erosion

• Margin contraction seems inevitable, given increasing competition in the home appliance market. We expect the company to partially offset the impact through strong cost discipline.

• We revise down our 2021-23 gross margin and SG&A expense ratio estimates by 3.7%p and 2.4%p, respectively.


Risk factors

• 1) Increasing competition in the home appliance market; 2) softening home appliance demand due to sluggish consumer spending; and 3) decline in robotics demand due to dwindling capex



 
FY ( Dec.) 2018 2019 2020 2021F 2022F 2023F
Revenue (CNYbn) 261.8 279.4 285.7 327.9 367.1 398.3
OP (CNYbn) 22.8 27.3 26.5 29.4 33.6 36.7
OP margin (%) 8.7 9.8 9.3 9.0 9.1 9.2
NP (CNYbn) 20.2 24.2 27.2 24.7 27.8 29.8
EPS (CNY) 3.05 3.58 3.90 3.51 3.95 4.23
ROE (%) 23.1 24.2 23.5 18.8 19.0 18.3
P/E (x) 12.1 16.0 25.4 20.8 18.5 17.3
P/B (x) 2.6 3.6 5.6 3.7 3.3 3.0
Note: Under GAAP Source: Company data, Mirae Asset Securities Research estimates



**** Please see the attached files for details.

Author
One Asia Research Team
Date
2021-11-03
Attach

Mirae Asset Social Networks


Mirae Asset Securities
Mirae Asset Global Investment
Mirae Asset Life insurance

Mirae Asset Global Network