BOC International has increased its target price for Midea Group (00300) by 2%, from HK$92.8 to HK$94.7, while maintaining a "Buy" rating. In the first quarter of 2026, Midea's revenue and net profit grew by 2.5% and 2% year-on-year, respectively. The bank considers these figures encouraging and potentially capable of delivering positive surprises to the market. Midea's Q1 2026 performance also demonstrates the company's ability to navigate challenges through product-driven market share growth, a more diversified business structure, and improved internal management and cost control. Despite facing common industry challenges such as rising input costs and geopolitical tensions, BOC International expects Midea to manage these risks more effectively, supported by stronger cash flow growth, which will enable further shareholder return initiatives. While the second quarter of 2026 may remain challenging, Midea has already formulated response plans. Besides weak demand, particularly in the Chinese market, rising costs are seen as the major challenge in Q2. However, Midea can mitigate these through: 1) price increases, which have already been implemented for some models in Q1 2026; 2) passing on part of the cost pressure to OEM customers; and 3) further internal reforms, such as integrated inventory sharing across channels and more selective supplier choices. Recently, Midea also entered into a strategic agreement with CIMC (02039) to lock in freight prices, positioning the company more favorably than many of its peers.
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