Midea Group (000333 CH) – Growing its diversified portfolio
• Executing steadily in FY21 and 1Q22
• Stringent cost management measures in the face of cost pressures but not stingy on R&D investments
• Remain positive over longer-term
Executing steadily in FY21 and 1Q22 – Midea delivered a 5% growth in FY21 earnings RMB28.6b, in-line with expectations. Revenue climbed 20% to RMB343b as domestic sales rose 25% to RMB204b (accounting for 60% of revenue) and overseas sales grew 14% to RMB138b (40% of revenue). Gross margin dropped 2.5 percentage points (ppt) to 23%, mainly due to raw material cost challenges. This was offset by stringent management of selling expenses, which only rose 4% to RMB28.6b (about 8% of rev). Administrative expenses were 11% higher and R&D expenses grew 19% with more R&D staff and investments. All-in, net margin was lower at 8.3%. Operating cash inflow was 19% higher at RMB35.1b. The group also announced final dividend per share of RMB1.70, translating to about 40% payout which was similar to last year. In 4Q21, revenue grew 18% year-on-year (YoY) while net profit was 2% lower. As for 1Q22, revenue increased 10% YoY to RMB90.9b and earnings was 11% higher at RMB7.2b, which was also within expectations. In our view, the results demonstrated the company’s consistently stable execution even when faced with various cyclical headwinds. Meanwhile, the recent RMB depreciation, may provide the group with more leeway in either expanding overseas sales.
Management still confident of future growth from various segments – While managing near-term cost pressures, management has kept its eyes focused on the longer-term growth of the group as well.
Midea has earlier streamlined its businesses into five major divisions – 1) smart household, 2) electromechanics, 3) ventilation and building systems, 4) robotics & automation, and 5) digital innovation – and does not intend to make big acquisitions in the coming years. FY21 saw smart household revenue growing 13% to RMB235b, robotics & automation +23% to RMB25.3b, and the other segments growing by about 40-60%, though from smaller bases. The group previously mentioned that it targets to secure about 10% of the global home appliance market share with more than USD40b sales in 2025, implying a doubling in size from 2020 levels. Growth is expected to be driven by five major markets (US, Germany, Japan, Brazil and ASEAN) and increased exposure to Original Brand Manufacturers. BUY.
(Research Team)