At a HK$600 billion market cap, Midea Group (SEHK: 0300) pays a growing dividend with a 5% yield.
It’s also currently the world’s largest home appliance company – Selling air conditioners to washing machines.
The company was first listed in China ten years ago. And was recently listed on the Hong Kong Exchange in September 2024.
Since then, its H-shares were up 25%.
Over the last ten years, its A-share listing has compounded 12% returns per year, despite China’s recent bear market. Not too bad.
What’s more it’s growing its dividends and trades at a mere 13x P/E ratio.
Is Midea Group’s 5% dividend yield worth a look? Let’s dive in!
Midea Group’s rise: a China entrepreneurship story
Midea didn’t start big.
It began as a small workshop in 1968, selling plastics and metal finished goods. In the 1980s, its breakthrough came when it entered the electric fan and air-conditioners market. Midea acquired other air-conditioner manufacturers, and solidified its market position.
After achieving a revenue of CNY10 billion in 2000, Midea started to produce washing machines and refrigerators.
Today, Midea owns over 30 household brands, including Japanese brand Toshiba, Italian brand Clivet and Germany’s KUKA Robotics It also expanded into the overseas market – selling fans in Brazil and dishwashers in Europe.
Here’s what impressed me:
- It’s currently the biggest supplier of home appliances in China, holding a 25% market share (with the second and third largest having 7.6% and 6.5% market share respectively).
- It has an 8% global market share in the top home appliance company.
In just 45 years, Midea grew from a family-run small business, into an all-rounded corporate giant.
“China-to-Global + Regional-to-Regional” model
Given its successful growth overseas, Midea has a diversified revenue source. ~60% of revenue comes from China, with the rest of its revenues from overseas markets.
But Midea isn’t just a Chinese brand. It’s a global manufacturing workhorse.
Credit: Midea Group’s Financial Reports 2024
So far, it has a global production footprint with 14 production facilities in China, six across Vietnam, Belarus, Egypt, Brazil, Argentina and India.
Its scale helps to grow its global presence. But more crucially this helps to mitigate geopolitical risks.
If the US continues to impose tariffs on Chinese imports, Midea can swiftly respond to this. For instance, allocating the orders to factories in Brazil and Argentina.
Midea Group’s stable financial track record
First things first, Midea spends a lot on R&D. It has 33 R&D centres across 11 countries. In fact, over the last five years, it spent over CNY60 billion in R&D, which allows Midea to launch new products. This has been a core driver of its growth.
Since 2020, Midea Group’s…
- Revenues grew 9.4% per year
- Gross profits grew 13.4% per year
- Net profits grew 9% per year
What’s more, its ROE stood at a 5-year average of 21%. ROE reflects how efficient a company is. This puts Midea as one of the most capital-efficient businesses in China.
What’s driving Midea Group’s growth?
First of all, Midea has been actively tapping into developing markets, including Southeast Asia, Africa and other overseas markets. On top of the new markets, there is a replacement need for home appliances.
According to China Household Electrical Appliances Association, home appliances exports grew 14% to US$100 billion in 2024. That’s a record high. What’s more, there’s also strong demand in overseas emerging markets, including LATAM and ASEAN.
As inflation pressure hit consumers’ wallet, more affordable home appliances from Midea would drive its growth.
Next, as I’ve said, Midea has put a lot of effort into making innovative products. Products with new functions/designs are usually sold at higher prices. Therefore, the increase in average selling price (ASP) will be another driving force to their profitability.
Lastly, remember KUKA Group, the robotic company acquired by Midea in 2017? It is one of the top four industrial robotic manufacturers worldwide.
As the application of robotics is getting more common, this can be a growth driver for Midea.
Midea is a consistent dividend payer
Over the last ten years, Midea Group’s dividends grew from HK$0.80 to HK$3.50 per share. That’s 337% dividends growth.
The lowest payout ratio of over the last five years happened in 2020 during the savage COVID-19 pandemic.
Back then, Midea paid just 45% of its net profit to shareholders.
Now, if earnings continue to grow at a 12% per year, and if the company pays about 60% of its profits to shareholders as dividends, the current price indicates a growing yield from 5.2% to 7.2% in the next three years.
My final thoughts
Since its Hong Kong listing last year, shares of Midea have traded like a bond – very stable.
While there’s probably more higher yielding stocks worth investing in China/HK today, a 5% dividend yield for the world’s biggest home appliance maker gives long-term dividend investor a stable source of passive income.
