• Results within expectations
• RMB1.30 dividend with share buybacks
• Supportive govt policies

FY18 Results in Line

Midea Group delivered an 8.2% rise in revenue to RMB260.2b and a 17.1% increase in net profit to RMB20.2b in FY18, such that the latter accounted for 98% and 99% of ours and the street’s full year estimates, respectively. Unsurprisingly, revenue growth decelerated in 4Q18 vs. 3Q18 with the slower demand for white goods amidst the property market slowdown and lower consumer confidence. Air-conditioners’ growth in 2H18 decelerated to 0.4% YoY, much lower compared to 27.7% YoY in 1H18.

Consumer appliances also registered a slowdown in growth, from 6.7% YoY in 1H18 to 1.7% in 2H18. KUKA saw a contraction in revenue of 5% in 2018, which is not entirely surprising given how the company has been lowering its earnings guidance given the dimmer outlook. There were also management changes in KUKA, with Till Reuter (CEO for last 10 years) stepping down in Dec last year. On a positive note, there was improvement in gross margins, with more sales of higher-end products and lower growth in raw material costs.

Rewarding Shareholders

A dividend of RMB1.30/share has been declared, translating to a payout ratio of about 42% in 2018 compared to 46% in 2017. This is in line with the group’s guidance of more than 40% payout ratios, and we note that Midea has also undertaken RMB4b of share buybacks in 2018. In end Feb, the group announced that it plans to spend as much as RMB6.6b to buy back shares, and this is based on 60m-120m shares over the next 12 months. The purchase price for the shares will be at no more than RMB55/share.

Awaiting Supportive Government Policies

Looking ahead at 2019, however, there should be a recovery in consumption with benefits from the VAT cut and upcoming supportive government policies. Indeed, recently there have been media reports that there could be central government subsidies for purchases of home appliances that meet certain energyconsumption, environmental and technology criteria. We tweak our estimates and rolling forward our valuations, our sum-of-parts fair value estimate rises from RMB50.26 to RMB55.00.

Source: OCBC Research - 23 Apr 2019