Investment highlights: With only a slight decline in actual operating profit for Q2 2026, the company's performance demonstrates strong resilience, leading to a maintained "Buy" rating.

In H1 2026, the company achieved revenue of RMB 260.04 billion (up 3.6% year-on-year, same below), with net profit attributable to shareholders reaching RMB 26.45 billion and non-GAAP net profit at RMB 19.60 billion, representing changes of +1.7% and -25.3% respectively. On a quarterly basis, Q2 2026 revenue stood at RMB 128.94 billion (+4.6%), with attributable net profit of RMB 13.77 billion (+1.3%). To reflect the company's true operating performance, after adding back foreign exchange hedging gains and goodwill impairment, while excluding fair value changes from equity investments, the expected year-on-year decline in actual operating net profit would narrow significantly. The non-GAAP net profit figure does not genuinely represent the company's operational performance.

We maintain our earnings forecast, projecting attributable net profits of RMB 46.77 billion, RMB 50.41 billion, and RMB 54.03 billion for 2026-2028, corresponding to EPS of RMB 6.1, RMB 6.6, and RMB 7.1. At current prices, the P/E ratios are 14.1x, 13.1x, and 12.2x respectively. We remain optimistic about the recovery of domestic sales growth following the low base period, the advancement of the OBM strategy overseas, and the leverage of R&D and manufacturing advantages in the ToB segment to penetrate frontier industries for sustained high growth. We maintain our "Buy" rating.

ToC overseas OBM accelerates breakthrough; Building Technology and Robotics segments show faster revenue growth while expanding into frontier industries.

(1) ToC Smart Home Business: H1 2026 revenue reached RMB 174.34 billion (+4.3% year-on-year). Domestically, Midea's products rank first in sales across major online platforms and offline channels. The DTC transformation has proven effective, with average daily owned inventory down 16% year-on-year and cloud warehouse offline channel coverage improved to over 94%. For overseas markets, OBM revenue share has surpassed 50%, with European TEKA revenue up over 20% year-on-year and US OBM revenue up 24%. We view the deepening OBM strategy favorably as it enhances the company's global market share.

(2) ToB Commercial & Industrial Solutions: H1 2026 revenue reached RMB 66.67 billion (+3.3% year-on-year). Within this segment, Building Technology contributed RMB 21.63 billion (+10.8%), with central air conditioning domestic sales share exceeding 22% ranking first in the industry, magnetic levitation centrifugal chiller share at 29.7%, and comprehensive breakthroughs in data center liquid cooling. Robotics & Automation generated RMB 16.62 billion (+10.3%), with KUKA's domestic sales share at 9.7% ranking second in the industry. Industrial Technology recorded RMB 13.14 billion (-12.7%), with Meizhi's air conditioning compressors maintaining the world's top sales share and Weiling's automotive components revenue surging over 90% year-on-year, achieving first-time half-year profitability. We expect the company to leverage its global competitive advantages in R&D and manufacturing to deeply position in frontier industries and cultivate new growth curves.

Net margin remains stable despite exchange rate and cost pressures, demonstrating operational resilience with ample cash flow safety margins.

For H1 2026, gross margin was 25.3% (-0.4 percentage points), with selling/admin/R&D/financial expense ratios at 8.3%/2.9%/3.2%/1.3%, changing by -0.9/flat/-0.2/+3.6 percentage points year-on-year. For Q2 2026, gross margin was 24.9% (-0.9 percentage points), with corresponding expense ratios at 7.9%/3.0%/3.3%/1.5%, changing by -1.2/flat/-0.2/+4.0 percentage points. Selling expense ratios continue to optimize, while financial expense ratios have risen due to exchange losses. H1 2026/Q2 2026 net margins were 10.2%/10.6%, changing by +0.5/-0.6 percentage points year-on-year. H1 2026 operating cash flow reached RMB 37.55 billion (+0.7%), approximately 1.4 times attributable net profit, indicating sufficient cash flow safety margins.

Active cash dividends and share buybacks in H1 2026 ensure high certainty of capital distribution.

(1) Cash Dividends: The company announced an interim dividend for 2026, planning to distribute RMB 5.00 (pre-tax) per 10 shares, with total cash dividends of RMB 3.7 billion. (2) Share Buybacks: During H1 2026, the total amount of share repurchases exceeded RMB 6.9 billion. We expect the company to continue advancing buybacks in H2, fully implementing its annual repurchase program of RMB 6.5-13 billion. Additionally, Changxin Technology, in which the company previously invested and holds approximately 450 million shares, listed in Q3 2026. It is expected to generate considerable investment returns, enrich distributable cash resources, and strengthen cash dividend capability. These multiple factors will collectively safeguard shareholder returns.

Risk warnings: Significant fluctuations in raw material costs; risk of significant exchange rate volatility; intensified competition in overseas markets.