This year's major transformation for Midea in the Chinese market is the comprehensive shift toward retail.

On August 29, Midea Group Co.,Ltd. released its 2025 interim results report: total operating revenue for the first half reached 252.3 billion yuan, up 15.7% year-on-year, with net profit attributable to shareholders hitting 26 billion yuan, an increase of 25%, averaging nearly 150 million yuan in daily net profit.

However, for many capital market investors, the earnings capacity of home appliance stocks, including Midea, remains insufficient. Currently, domestic listed home appliance companies maintain relatively low price-to-earnings ratios. For Hong Kong-listed shares, MIDEA GROUP's dynamic P/E ratio hovers around 13 (approximately 11 for A-shares), below the average of the "Hong Kong Top 10 Giants" (Goldman Sachs previously proposed the concept of "China's Top 10 Private Enterprise Giants," later known as "Hong Kong Top 10 Giants," with Midea among them). Year-to-date (as of September 2), MIDEA GROUP (H-shares) has gained 20%, while the Hang Seng Index rose 27% over the same period, reflecting capital market conservatism and hesitation regarding Midea's future growth prospects.

"Our recent stock performance has underperformed the broader market. Midea is considered a relatively stable stock with low volatility. In the current favorable market conditions, investors may choose faster-growing stocks," said Gao Shu, Board Secretary of Midea Group. "We believe the company's valuation is undervalued, which is why we are conducting share buybacks."

Gao Shu joined Midea earlier this year, previously serving as Managing Director at China International Capital Corporation's Investment Banking Division. Despite being an external hire, her familiarity with Midea spans years: her first contact dates back to 2013 when she participated as an investment banking newcomer in Midea Group's overall A-share listing. Twelve years later, as an experienced investment banker, Gao Shu comprehensively managed Midea Group's Hong Kong listing, with the final fundraising scale setting a new record for Hong Kong IPOs over the previous three years. In Gao Shu's view, today's Midea differs vastly from over a decade ago, yet many still perceive Midea as a traditional home appliance company.

The domestic home appliance market has long been a red ocean. For Midea, holding "top one or two" positions across multiple appliance categories, advancing further requires one approach: "competing with itself." Midea's internally reinforced "simplification battle" in 2025 and self-disruptive DTC (Direct-to-Consumer) channel reforms target continuous cost and efficiency optimization: Midea's net profit margin further improved to 10.6% in H1 2025, compared to 9.5% in the same period of 2024.

Another path involves "moving upward" and "expanding outward." In H1 2025, Midea's "COLMO + Toshiba" dual high-end brands achieved overall retail growth exceeding 60%, while OBM (Own Brand Manufacturing) revenue reached over 45% of overseas smart home revenue. While these businesses show significant year-on-year improvement, considering the modest base, absolute scale remains limited.

"The home appliance industry, like steel and cement industries, has life cycles. Midea is now making its home appliance business cycle more gradual through business model transformation, high-end structural adjustments, and overseas expansion to extend the first growth curve's development cycle, while promoting the second growth curve's B2B business to achieve perfect integration with the home appliance industry, forming a 'growth relay' momentum," stated Fang Hongbo, Chairman and President of Midea Group, at the 2024 Annual General Meeting.

B2B business represents the story Midea now seeks to tell better, with financial reports reflecting this intent: Starting from the 2024 annual report, Midea Group adjusted statistical criteria in its operating revenue composition table. The major categories remain Smart Home (B2C) and Commercial & Industrial Solutions (B2B), with the former no longer categorized for display, while the latter first detailed various business segments' indicators, including New Energy & Industrial Technology, Smart Building Technology, Robotics & Automation, and Other Businesses.

"We hope to more clearly demonstrate the value of Midea's B2B business," Gao Shu explained. Under overall disclosure, in 2023, Midea's robotics, automation systems, and other manufacturing businesses achieved an overall gross margin of merely 23.71%, significantly lower than consumer appliances' 33%. After categorized disclosure, Midea's advantageous businesses become prominent, such as Smart Building Technology, which achieved a 29.33% gross margin in H1 2025, the highest among all businesses, exceeding Smart Home's 28.52%.

Gao Shu also revealed that beyond the three major B2B segments, Midea further elevated the strategic positioning of medical and logistics this year, officially dividing B2B business into five major segments. Additionally, the logistics segment's Ande Smart Logistics has submitted an IPO application to the Hong Kong Stock Exchange, potentially becoming the first truly spun-off listed subsidiary within the Midea system. It will leverage capital market and industrial integration opportunities to further strengthen through M&A.

M&A has consistently been one of Midea's growth drivers: acquiring Toshiba Home Appliances yielded patents and overseas markets; acquiring KUKA provided entry into the industrial robotics track; acquiring Hiconics and CLOU Electronics enhanced new energy positioning. The new board secretary's investment banking background even led to external speculation about Midea accelerating M&A activities. While Gao Shu denied this connection, she indicated that Midea continuously seeks M&A opportunities, especially for B2B business, with humanoid robotics and other frontier industries being "actively monitored" target areas.

Midea, aspiring to build a "global technology group," is striving to shed its "traditional" label and increase "technology" content. Five years ago, it shifted from a "product leadership" strategy to "technology leadership." From 2022 to 2024, Midea invested over 43 billion yuan in R&D. H1 2025 set new records with R&D investment growing 14% year-on-year to 8.8 billion yuan. In 2025, Midea's self-developed humanoid robot Meiluo officially began work at Midea's Jingzhou washing machine factory, which just received the world's first intelligent agent factory certification. While Fang Hongbo frankly stated "Midea hasn't established a moat yet," several interviewed Midea executives noted that technology could become Midea's future competitive weapon, with "AI application capabilities potentially rivaling internet companies."

If this represents Midea's ambitious future, the story of technological Midea has just begun.

Regarding market concerns about Midea's stock price growth lagging the broader market, future M&A directions, and business spin-off progress and plans, Midea Group Board Secretary Gao Shu provided insights.

**"Comprehensive Retail Transformation"**

**Q: Many home appliance companies face significant growth pressure this year. How will Midea respond?**

**Gao Shu:** Benefiting from government subsidies, the entire industry experienced growth in H1. As subsidy marginal effects diminish, the industry will face future pressure.

This reflects the domestic market reality, but overseas markets offer significant growth potential. Last year, Midea's export sales already accounted for 46% of B2C business, with further increases expected. From a global market perspective, Midea holds approximately 5% market share, with few competitive global players remaining. Future advantages for Chinese companies in efficiency and R&D investment provide greater benefits. Midea remains confident in capturing more global market share, so our B2C focus is overseas, specifically OBM (Own Brand Manufacturing).

Comparatively, B2B should offer greater growth potential than B2C.

**Q: Does B2B growth mainly come from overseas?**

**Gao Shu:** It depends on different industries. For Smart Building Technology, nearly half the revenue comes from overseas. We acquired ARBONIA AG's climate division ARBONIA Climate in H1, which will synergize with Clivet, the Italian central air conditioning brand acquired in 2016. This segment's future strategy is "China-Europe dual main battlefields." For KUKA, 2024 Chinese market revenue represented just over 20%, now reaching nearly 30% in H1 2025. China's market will grow faster than global markets.

**Q: Regarding incremental markets, internet companies show increasingly strong growth momentum. How does Midea compete?**

**Gao Shu:** Each company has advantages, and we learn from internet companies, such as their asset-light models, which we consider adopting for some living appliance categories. Their marketing approaches also merit learning.

This year's major transformation for Midea in the Chinese market is comprehensive retail transition. We now empower Midea's small B distributors, helping them open stores, drive foot traffic, and train staff, hoping to simplify their business with Midea and focus on retail excellence. Additionally, we've implemented numerous initiatives to strengthen brand recognition. Previously, traditional stores mainly operated in home furnishing malls, but to attract younger consumers, we must establish various store formats in locations with younger traffic, embedding Midea products across different consumption scenarios to enhance consumer interaction.

**"B2B Business Has Not Yet Won Market Valuation"**

**Q: Many investors view Midea's P/E ratio as low - approximately 11 for A-shares and 13 for H-shares. What measures has Midea taken regarding capital market performance?**

**Gao Shu:** Midea's recent stock performance indeed underperformed the broader market. We consider current stock price levels undervalued.

This year, Midea increased shareholder returns through cash dividends - last year's (2024) cash dividend payout ratio approached 70% of net profit (3.5 yuan per 10 shares). This year marked our first interim dividend (0.5 yuan per 10 shares). We also diversified shareholder returns by launching two share buyback programs: 1.5-3 billion yuan (for equity incentives) and 5-10 billion yuan (minimum 70% for buyback and cancellation).

Some individual investors questioned whether management wants to suppress stock prices for buybacks. This logic is incorrect - precisely because we believe company valuation is undervalued, using company cash for buyback and cancellation benefits all shareholders. If company valuation were reasonable, cash dividends might be preferable. Financially, cancellation increases EPS (earnings per share), representing common market value management in capital markets, especially overseas.

**Q: Will Midea continue buyback operations?**

**Gao Shu:** We're exploring diversified shareholder return methods. For A-share markets, buyback and cancellation aren't common - investors prefer cash dividends. We'll comprehensively assess market feedback and performance post-buyback, not excluding buyback and cancellation as regular enhanced shareholder return methods.

**Q: Why do you believe Midea's stock price is undervalued?**

**Gao Shu:** Many investors view home appliance stocks as defensive with stable prices and low volatility. In favorable market conditions, they prefer faster-growing stocks, so appliance stocks generally underperform.

For Midea, people still simply regard it as a traditional white goods company without recognizing B2B segment business potential - which commands higher valuations. This largely stems from Midea's B2B business segments not achieving the market-leading positions of its home appliance core business.

Fundamentals remain most crucial, so we must find second growth curves and expand B2B operations. Some analysts began noticing Midea's B2B valuations this year, as our 2024 B2B revenue first exceeded 100 billion yuan. Among A-share listed companies, only over 100 companies achieved revenues exceeding 100 billion yuan in 2024.

**Q: However, Midea's B2B business gross margins aren't high.**

**Gao Shu:** Overall B2B figures appear this way, but individual business segments vary significantly. Smart Building Technology represents the group's highest gross margin segment (2024 data: 30.17%). New Energy & Industrial Technology divides into two parts - new energy tracks currently maintain thin profit margins but show year-on-year improvement. For instance, Hiconics' H1 profits increased 733% compared to last year, with profit growth exceeding revenue growth and cash flow far surpassing profits. For Industrial Technology, new energy vehicle components just reached break-even after high upfront R&D investments, with future profit realization expected. Robotics & Automation currently maintains relatively low profits mainly due to core component R&D ramp-up phases. We've achieved successive breakthroughs in reducers and large motors, expecting significant future B2B business overall profit margin improvements.

Beyond these three segments, this year we elevated medical and logistics to business segment status, creating five major B2B segments with clearer positioning. Additionally, starting from the 2024 annual report, we adjusted financial statements to separately list three major B2B segments' performance - since we hope markets conduct classified valuations, we need clearer B2B financial data presentation.

**"Large M&A Targets Have Not Yet Emerged"**

**Q: Considering your investment banking background, external speculation suggests Midea will further accelerate M&A activities. Is this accurate?**

**Gao Shu:** Actually, there's no connection. Midea continuously explores various M&A opportunities, completing numerous transactions this year, including the mentioned ARBONIA, Toshiba Elevator (China) equity, German brand TEKA for B2C, and Zehnder's Chinese operations for home air conditioning.

However, relative to our group scale, these acquisitions remain relatively small. Currently, globally, it's difficult to find acquisition targets with KUKA's scale.

**Q: What are next-step M&A directions?**

**Gao Shu:** For B2C, we'll continuously examine companies with brand value and channel resources in niche markets, supplementing our coverage gaps in certain countries and segments while introducing market increments. Midea's future focus lies in B2B, with M&A increasingly centered around the five major B2B segments.

**Q: Returning to market value issues, diversified companies with overall listings generally receive valuations smaller than spin-off sums. How does Midea advance spin-off operations?**

**Gao Shu:** Actually, since A-share spin-off policies emerged (late 2019's "Pilot Provisions for Listed Companies' Spin-offs of Subsidiaries for Domestic Listing"), we attempted business separations but ultimately unsuccessful. We're now advancing other spin-offs, such as Smart Logistics segment's Ande Smart Logistics, which submitted applications to the Hong Kong Stock Exchange. If successful, it could become our group's first spin-off listed company.

**Q: What's the logic behind integration and separation?**

**Gao Shu:** Integration and separation center on Midea's current strategy. For example, Midea previously absorbed A-share listed company Little Swan and Hong Kong listing platform威灵, aiming to streamline internal business architecture and strengthen internal synergies.

From spin-off company perspectives, they must meet regulatory requirements while possessing independent development capabilities and growth potential post-separation. For instance, Ande Smart Logistics' main business involves end-to-end production logistics solutions, differing from the group's traditional core business. Last year, Ande's revenue scale approached 200 billion yuan - within group statements, it's barely noticeable, yet its growth rates and ROE levels over recent years exceed the group's. Additionally, China's production logistics concentration remains low, with potential future industry consolidation opportunities. Independent listing platforms can better leverage capital markets and industrial integration opportunities to strengthen further through M&A.