What happened in the white goods industry in the third quarter?

  • Combined third-quarter revenue at Midea, Haier, Gree and Hisense, the four white goods companies covered by Goldman Sachs, fell 7% year on year in 2026, while net profit fell 5%. Excluding Midea’s fair-value gains, net profit fell 23% year on year.
  • Weak domestic demand had been expected: after appliance retail sales improved for consecutive months from July to August, they weakened again in September despite a lower base; domestic white goods shipment growth slowed from the second quarter and fell short of earlier production plans.
  • Overseas markets were relatively resilient, especially outside the United States. At the same time, rising costs and exchange-rate fluctuations made the divergence in profits more pronounced: Midea benefited from improved efficiency, while Gree and Hisense found it harder to pass on costs and were more reliant on the domestic market for profits.

Why did profits differ so much despite similar pressures?

  • Midea’s third-quarter revenue was 108 billion yuan, down 4% year on year; net profit excluding investment gains from Changxin Technology was 11 billion yuan, down 10%. Overseas markets and business serving corporate customers provided support; including fair-value gains on investments, reported net profit rose 26% year on year.
  • Haier Smart Home reported revenue of 69.7 billion yuan and net profit of 4.7 billion yuan, down 10% and 12% year on year, respectively. Demand was weak in China and the United States, but overseas markets outside the United States grew; despite pressure on gross margin, spending was controlled and operating profit was roughly unchanged from a year earlier.
  • Hisense Home Appliances reported revenue of 20.248 billion yuan, down 9% year on year, and net profit of 191 million yuan, down 74% and 67% below Goldman Sachs’ forecast. Gree reported revenue of 36.871 billion yuan, down 8% year on year, and net profit of 3.996 billion yuan, down 43% and 36% below Goldman Sachs’ forecast. Both companies faced pressure from domestic demand and margins.
  • Cost structures also contributed to the differences: copper prices rose further in the third quarter, while petrochemical prices rebounded. Air conditioners and refrigerators are more sensitive to copper and petrochemical raw material prices, and these two businesses account for a relatively high share of product revenue at Gree and Hisense.

How long can the fourth-quarter rebound last?

  • Goldman Sachs expects combined revenue and net profit at the four companies it covers to rise 4% year on year in the fourth quarter of 2026, driven mainly by a lower domestic base and continued overseas growth.
  • The bank characterizes the domestic improvement as a modest rebound: the lower base is the main support, rather than a reversal in the demand trend. As the comparison base rises and Midea continues to reform its direct-sales channels, Goldman Sachs expects pressure to re-emerge in the first quarter of 2027.
  • Overseas demand provides another source of support. Export sales of variable refrigerant flow systems rose 29% year on year in the third quarter, up from 8% in the second quarter; domestic shipments of these systems remained weak. Goldman Sachs expects costs and exchange rates to continue weighing on margins, although additional pressure will ease somewhat.

Which companies does Goldman Sachs favor for their ability to recover?

  • Goldman Sachs maintained its buy rating on Midea, expecting continued growth in overseas appliances and corporate customer businesses. A lighter cash and inventory burden following channel reforms should also help the domestic business remain resilient; its 12-month price targets for the A-shares and H-shares were raised to 100 yuan and 116 Hong Kong dollars, respectively.
  • Haier Smart Home also retains a buy rating. Goldman Sachs expects its profit to rebound with support from a low base, but the size of the rebound is highly dependent on conditions in the Chinese and US appliance markets. Hisense Home Appliances may return to revenue growth, but its profit recovery is expected to take longer because earnings depend more heavily on its central air-conditioning business linked to domestic real estate, while cost pressures persist.
  • Gree has the greatest reliance on the domestic market. Goldman Sachs expects continued pressure on its revenue and profit growth and maintains a neutral rating; shareholder returns provide some support for its valuation.