Midea: Quality Industrial Compounder Mispriced at Home Appliance Multiple

Rodrigo Lopez Buenrostro of KUE Capital presented his investment thesis on Midea Group (China: 000333; Hong Kong: 0300) at Wide-Moat Investing Summit 2026.

Thesis summary:

Midea is a vertically integrated, global original brand manufacturer (OBM). The market prices it as a saturated home appliance maker; Rodrigo argues it is an underpriced global industrial compounder. In FY2025 Midea generated RMB 458.5B (US$63.5B) of revenue, up 12%, and RMB 44.0B (US$6.1B) of net profit, up 14%, on a 27% gross margin. Non-China revenue is 43% of the total and grew 16%, across 65 production centers and 200-plus countries.

Two engines drive the business: a B2C smart home franchise at 66% of revenue that funds the company, and a B2B commercial and industrial platform at 27% that should drive a re-rating. The moat rests on vertical integration and manufacturing depth. Through its GMCC unit, Midea holds 45% of the global HVAC compressor market, the highest-value part of an air conditioner, plus 40% of AC motors. It ranks fourth worldwide in patent families and owns KUKA, a top-four robotics platform.

Rodrigo’s differentiated view is that B2B re-rates the stock as it crosses 30% of the revenue mix from 27% today, with B2B gross margins moving above 25%. He models B2B compounding at 15% and B2C at a conservative 6%, with overseas appliances and B2B leading growth as China’s subsidy-driven domestic market normalizes. Historical ROE has averaged 20% on 13% ROIC; he forecasts 22% ROE and 17% ROIC, funded internally by a net-cash balance sheet.

Management is aligned with minorities. The He founding family and insiders own about 34% of the company, and 83% of CEO Fang Hongbo’s pay is equity that vests only if ROE stays above 18%. Fang, 33 years at Midea, led the 2025 acquisitions of Toshiba Elevator China, Arbonia, and Carestream, listed the H-shares in 2024 to attract foreign capital, and raised the dividend 47%, taking the yield to about 5%.

Midea recently traded at 79 CNY (US$11.5), or 15x earnings and a 7.3% FCFE yield, against Rodrigo’s intrinsic value of 130 CNY (US$19), a 38% margin of safety and a 21% IRR to 2033, roughly 5 points of it from dividends. His exit assumptions are modest: a 17x P/E, a 6% FCFE yield, and a 19% terminal ROE, on forward revenue and FCFE CAGRs of 9% and 12%. The shares trade near half the multiple of Western HVAC and elevator peers such as Otis, Carrier, and Honeywell, despite comparable or higher ROIC.

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About the instructor:

Rodrigo Lopez Buenrostro is a Partner at Kue Capital where he invests to preserve capital over time. He currently leads the asset management division within the firm and divides his time between equity research and manager selection with a global mandate. Previously, Rodrigo worked as a summer equity analyst at SW Investments, a value-focused hedge fund in Chicago. He began his professional career as an Investment Banker at BBVA. Rodrigo is an MBA graduate from Chicago Booth Class of 2015 where he earned a concentration in Analytic Finance and was actively involved in the Investment Management community. He studied Business and Accounting at ITAM for undergraduate where he wrote his graduating thesis on hedge funds and started to invest personally. Rodrigo has always had an interest in finding the real value of assets, reading, and volunteering to teach basic concepts related to investing.

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