Bank of America: Midea’s third-quarter revenue falls as net profit rises: Fair-value gains mask pressure on core earnings

Why did net profit rise while core earnings fell?

In the third quarter of 2026, Midea’s revenue fell 3.9% year over year to 108.035 billion yuan, while net profit rose 25.9% to 14.947 billion yuan; core net profit fell 15.7% to 9.193 billion yuan.
Bank of America noted that investments related to ChangXin Memory Technologies recorded more than 10 billion yuan in pretax fair-value gains in the first three quarters of 2026, with about half recognized in the third quarter, boosting the growth rate of reported net profit for the quarter.
Product gross margin fell 47 basis points year over year in the third quarter, a narrower decline than the 86 basis points in the second quarter. Despite continued pressure from exchange rates and costs, Bank of America believes strict expense controls helped margins stabilize quarter over quarter.

Third-quarter consumer business revenue fell by a high-single-digit percentage year over year, including a decline of more than 15% in China and more than 20% in domestic air conditioning. Bank of America estimates that, excluding the impact of reforms to the direct-to-consumer air-conditioning channel, domestic air-conditioning revenue fell only by a low-single-digit percentage.
Bank of America expects the final round of impact from channel reforms, combined with a high year-earlier comparison base, to continue weighing on performance in the first quarter of 2027, followed by a recovery starting in the second quarter. The bank believes the reforms will help reduce channel risk and support further market-share gains.

Overseas consumer business grew by a mid-single-digit percentage year over year in the third quarter, with growth in every region and faster growth in most markets. Overseas own-brand revenue grew more than 20% and accounted for more than half of overseas sales.
Business-to-business operations overall grew by a high-single-digit percentage year over year: building technologies grew by a high-single-digit percentage and robotics grew about 10%, but the industrial business declined more than 10%. Performance varied across the businesses.
Bank of America estimates that overall sales fell only slightly after excluding the impact of air-conditioning channel reforms. Taking into account higher margins, the company’s overseas and business-to-business footprint, and cost controls, the bank believes Midea outperformed peers in a weak market.

Bank of America kept its earnings forecasts largely unchanged, adjusting its 2026 earnings-per-share forecast from 5.92 yuan to 5.94 yuan, still below market consensus. It also maintained Buy ratings on Midea’s H-shares and A-shares, with target prices of 112 Hong Kong dollars and 101 yuan, respectively.
Shareholder returns are one basis for the rating: the company has proposed a 100% return policy, with about 75% through dividends and 25% through buybacks, and has committed to a dividend of at least 4.3 yuan per share. Bank of America estimates that net cash and financial assets available for sale total about 230 billion yuan, more than five times annual capital returns, and that free cash flow is positive.
Bank of America’s H-share target price gives equal weight to price-to-earnings and discounted cash flow valuations. The bank believes diversification across business-to-business and overseas operations can support long-term growth; an industry downturn, competition, raw-material prices and overseas regulation remain factors affecting its assessment.