2017 – a new era for the company, reinstating with Buy

We expect the KUKA acquisition will help Midea access the automation marketvia the German company’s robotics products for the automotive sector andgeneral industries. We expect Midea will also improve its own productionefficiency (smart manufacturing) and flexibility (smart appliance) by leveragingKUKA’s automation solutions. In addition, Midea could help KUKA to developthe China market through localization. We forecast the robotics revenue fromKUKA will contribute 12% of group revenue by 2018E, with 7% in NP. Mideashould continue to invest in the supply chain of robotics.
We expect air con (47% of total home appliance sales) to deliver double-digitgrowth in revenue in 1H17, mainly driven by channel re-stocking and thedemand from new home sales. Washing machines (9%) and refrigerators (8%)should grow at a double-digit rate and continue to gain market share. Itscombination of product mix upgrade and new product launches will offsethigher raw material costs, and we expect an 11%/11% increase inEBIT/revenue for its home appliance business.
KUKA acquisition: a key step towards smart manufacturing & smart appliancestrategy

[买入评级]MIDEA(000333)：EVOLUTION FROM AUTOMATION;REINSTATING WITH BUY

时间：2017年01月25日 15:00:21 中财网

With this note, we reinstate coverage on Midea with a Buy rating postrestriction. We believe the company has now formulated its long-term growthstrategy of globalization and automation, after the acquisitions of ToshibaAppliance and KUKA in 2016. Midea can now expand its global presence inhome appliance, leveraging Toshiba’s distribution network in Japan and SouthEast Asia. Within the automation segment, it will enable KUKA to furtherdevelop in China and also increase automation levels in its manufacturing andlogistics. Reinstating with Buy.

□ .R.i.c.h.a.r.d. .R.u.i.-.H.u.a.n.g./.A.n.n.e. .L.i.n.g　 .德.意.志.银.行.股.份.有.限.公.司

We lift our NP by 21-25% for FY17-18E to reflect the consolidation of Toshibaand KUKA. We use SOTP to value the company. Our new targetprice is RMB35.5, implying 13x/12x FY17/18E PE. Downside risks: globalexpansion; rising raw material prices and fierce competition.
A solid growth outlook in 2017, mainly driven by air con re-stocking
New target price of RMB35.5 on SOTP, implying 13x FY17E PE; risks
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