2026.09.23 | AC | Consumer | White Goods Leader Meeting

摘要

1. Solid growth in 1H2026, with overseas operations and To B businesses (Building Technologies, KUKA) serving as core

engines; domestic home appliances demonstrated resilience amid weak demand, adhering to the "top two" strategy for core categories.

1. Full-year target of 15% growth for overseas OBM is well within reach, backed by a footprint of 45 global factories;

local heat pump factories in Europe form a unique moat, and profit margins continue to converge toward OEM levels.

1. The air conditioning industry faces pressure throughout the year (subsidy roll-off + sluggish demand + elevated

copper prices); an August channel reform eliminated traditional "cold openings" in favor of order-based pickups, reducing channel inventory to 1–2 months despite short-term cash flow pressures.

1. Building Technologies grew 10%+, with AIDC thermal management clients covering Huawei, Alibaba, Meta, and OpenAI;

KUKA's domestic growth exceeded 20%, lifting market share to second place, while in-house breakthroughs in core components drove margin recovery.

Expert Perspectives:

I. Overall Operational Overview

In the first half of 2026, Midea Group Co., Ltd maintained steady overall operational growth. The overseas business served as the core growth engine, the To B business (Building Technologies, KUKA robotics) delivered standout performance, and the domestic home appliance business demonstrated strong operational resilience in a soft demand environment.

Core Data by Business Segment:

• Overseas business: Europe grew nearly 10%, the US grew 11%, and the Asia-Pacific region grew the fastest. Across the full year, only the Middle East contracted due to geopolitical conflicts, while all other regions achieved growth.
• Building Technologies: Grew over 10% overall in the first half, with domestic operations up about 8% (high single digits) and overseas up 11%–12%.
• KUKA Robotics: Grew over 10% in the first half, driven by over 20% domestic growth (reaching 30%+ in Q2) and single-digit overseas growth. Domestic market share rose to second place, trailing the market leader by only around 200 units.
• Domestic air conditioning: Maintained positive domestic sales growth of nearly 1% in the first half, outperforming peers against broader industry headwinds.

Core strategic stance: Persist in the "top two" strategy across core categories. Stabilize market share in air conditioners, aggressively capture share in refrigerators, stabilize share in washing machines + dryers, gain share through new offerings in kitchen appliances, and stabilize share in small appliances such as microwave and toaster ovens.

II. Overseas Business

(I) Growth Momentum

Overseas profit margins continue to expand. Currently, OBM margins are less than 1 percentage point below OEM margins, and margins are set to trend higher as operating scale expands. The OEM segment has historically generated the highest margins across the group's consumer (To C) operations.

The US market performed well in the first half, with concurrent expansion in contract manufacturing. In the tariff environment, certain traditional players lost cost advantages, leading orders to shift toward Midea. Europe offers high visibility and remains the core focus region for future overseas growth.

(II) Global Factory Footprint and Tariff Mitigation

The company currently operates approximately 45 factories overseas across both To B and To C segments, covering almost every major region. Among newly added overseas capacity, roughly 30% operates under localized manufacturing and dispatch, while 70% continues to be exported from China (European tariffs are only 2–3 percentage points, presenting limited impact).

• North America: Over 90% is supplied by overseas facilities, primarily Thailand, with modest volumes from Egypt. A local North American joint-venture plant with Electrolux and a factory in Mexico began operations in Q3, effectively neutralizing tariff impacts.
• Europe: Facilities in Turkey and Spain (non-dedicated appliance facilities that can be converted through capacity optimization) and the Egyptian plant are available to supply the market. Midea is the only Chinese manufacturer operating an active heat pump plant in Europe; local European manufacturing mandates for heat pump commercialization form a significant competitive barrier.
• Latin America: Despite tariffs reaching 60%–80%, local manufacturing in Brazil leaves operations unaffected.
• Africa: Sourced primarily via production and supply from Chinese and Egyptian factories.

Management views the probability of comprehensive additional European tariffs as low.

(III) Overseas Factory Operating Model

New factories typically begin with assembly, gradually introducing sheet metal fabrication, coating, stamping, and other processes in Phase II. Core components (such as compressors) are still manufactured in Chinese factories and shipped to overseas plants for assembly; lower-tech parts with local cost advantages, such as packaging materials, are procured locally. The Thailand facility has engaged local suppliers, and select core component vendors have accompanied Midea overseas to build plants (while also supplying Haier Smart Home); overall rollout remains gradual, however, as not all suppliers possess the capability to expand overseas.

III. Domestic Home Appliance Business

(I) Air Conditioning Industry Outlook

The air conditioning industry faces pressure throughout 2026, primarily stemming from three dynamics:

• Subsidy roll-off: National subsidies declined in scale this year, with coverage shifting from online to offline channels, markedly weakening policy stimulus.
• Subdued demand: Consumer sentiment remains cautious with no clear inflection point in sight, and a wait-and-see attitude prevails.
• High input costs: Upstream commodity prices (particularly copper) remain elevated; while plastics and steel prices have softened, copper shows no sign of retracing.

Delivering nearly 1% positive domestic shipment growth in the first half was no small feat for air conditioners. Lower base effects will ease comparative pressures in the second half, though demand pressure persists in absolute terms. Peak air conditioning installation tracking runs from May to August each year and has passed. August installation card tracking turned positive year-on-year, though a renewed downturn in September remains possible. 2027 is expected to improve over 2026, but the impact may be limited even if subsidy policies continue—subsidies persisted this year, yet consumers adopted a wait-and-see posture, with none of the concentrated rush to purchase seen last year.

(II) Market Share and Competitive Landscape

Midea's air conditioning market share remains within the 30%–35% band. Offline market share expanded significantly in the first half (to around 34%–38%), largely absorbing share from second- and third-tier brands; online share contracted slightly, mainly because aggressive Q1 pricing by Gree Electric Appliances,Inc.of Zhuhai (introducing "Kinghome" units) lifted Gree's share.

In terms of competitive advantages, Midea leverages scale effects, commodity hedging, and proprietary installation networks. For products priced at 1,500 RMB, Midea maintains disciplined cost control, whereas sub-scale competitors struggle to simultaneously cut costs, protect margins, and compete on price. Marginal players (second- and third-tier brands) face compounding pressure, enabling Midea to outperform peers even under a defensive posture.

Competition in the B端 space intensified this year as Haier Smart Home and Hisense pursued aggressive pricing to win commercial accounts, but Midea's B端 execution continued to outperform rivals. Haier's performance on the C端 side was unexceptional. In August, installation card metrics for Midea's premium products even outperformed Haier's entry-level units, driven by: Midea's market share running far ahead of Haier; Midea's stronger air conditioning distribution supported by proprietary installation teams; and a comprehensive product suite matching targeted brands and SKUs to different price points.

Xiaomi's home appliance market share has declined continuously since Q4 of last year, continuing its slide through the first half of this year, accompanied by a marked decline in market attention.

(III) Refrigerators and Washing Machines

Refrigerator and washing machine demand has long been driven by replacement cycles, leaving it less sensitive to national subsidy swings. Midea's market share in these categories trails the market leader by a wide margin; the business has steadily competed and captured share by introducing new products to fill category and price-tier gaps, sustaining acceptable performance overall.

(IV) Cost Pass-Through and Gross Margin

Passing costs through to end consumers remains difficult due to weak consumer demand; Midea primarily absorbs input cost increases through internal efficiency gains and cost-reduction initiatives. Price hikes attempted early in the year led to immediate share losses, prompting subsequent rollbacks. Price increases have been completed in the US market, but domestic increases have not been implemented, requiring close observation of leading industry peers' moves.

Second-half gross margins are expected to track first-half trends. Cost pressure from plastics has eased and steel prices have trended lower, but copper remains elevated with no sign of a pullback. Some commodity pressures will lighten in the second half.

Selling expense ratios are trending down across both domestic and overseas markets. The full-year target centers on stabilizing profit margins, with overall operational expenses held under strict discipline; the goal is to lower the domestic selling expense ratio by approximately 2 percentage points and the overseas ratio by around 1 percentage point.

Regarding the technical path of substituting aluminum alloys for copper: While viable from a performance standpoint—with aluminum piping demonstrating equal or superior stability and performance in Japanese timber-framed residences compared to copper—it has not emerged as a mainstream industry alternative.

(V) Brand Matrix

• Hualing: An extreme cost-to-performance defensive brand used primarily to counter internet brands like Xiaomi, serving as an important defensive tool to protect Midea's overall share. Hualing's inherently low price point aligns with consumption downgrade trends. Priced 500 to over 1,000 RMB below the master brand, entry-level models have sold for just over 900 RMB compared to 2,000+ RMB for the core brand. Hualing is an acquired brand and achieved modest market share gains this year.
• COLMO: A premium brand that benefited materially from national subsidies across the prior two years. Two years ago, amid depressed foundational demand, expectations for the brand were restrained under a "nurturing" approach. The brand delivered solid winter growth this year before softening somewhat; its overall retail scale stands at around 10 billion RMB, accounting for a modest share of revenue.
• Little Swan: Also an acquired brand, operating within the washing machine segment.

(VI) Channel Reform (Initiated in August)

In August 2026, Midea initiated lower-tier channel reforms across the air conditioning business. The core shift was eliminating traditional "cold opening" practices (which required distributors to place advance orders and make prepayments to hold inventory) in favor of an on-demand "order-based pickup" model—distributors place orders with the company only after securing customer orders, with retail store purchases triggering replenishment, removing the need for advance channel stocking.

Reform Impacts:

• No material impact on total sales revenue, altering only sales cadence.
• Notable impact on cash flow: Operating cash flow in Q3 and 1Q2027 will register substantial year-on-year declines, as positive contributions from advance dealer prepayments in historical periods disappear. Beginning in 3Q2027, year-on-year fluctuations will narrow.
• Healthier and more transparent inventory: Post-reform, total channel inventory (including distributor holdings) fell from historical levels of 3–4 months down to 1–2 months. Channel inventory was previously opaque; full visibility now enables precise management of omni-channel stock levels.
• Inventory risk shifts to the company balance sheet, but overall channel inventory levels have declined.

Reform Rationale: In an environment of weak consumer demand, repeatedly offering policy incentives to push inventory and demand prepayments from distributors eroded dealer profitability, creating a vicious cycle. The objective is to partner with distributors through challenging cycles while enticing distributors of rival air conditioning brands to switch to Midea. Excluding air conditioning, other product categories transitioned to order-based pickups long ago; following this restructuring, the air conditioning business is not expected to revert to the traditional model.

IV. To B Business

(I) Building Technologies

Building Technologies grew over 10% in the first half, with domestic growth of roughly 8% and overseas expansion of 11%–12%. Domestic momentum was driven primarily by new products and emerging use cases, while overseas growth benefited from government-backed initiatives.

New Use Case — AIDC (AI Data Centers):

• AIDC-related sales revenue came in under 1 billion RMB last year, targeting roughly 50% growth this year.
• Customer Progress: Active supply relationships have been established with Huawei and Alibaba; ByteDance and Tencent are being actively targeted; overseas engagements are underway with Meta, OpenAI, and Unity, including joint development efforts with select accounts.
• Material top-line inflection in AIDC revenue is anticipated by 2H2027 to year-end 2027.

New Product — High-Temperature Heat Pumps:

• Positioned to replace traditional industrial gas-fired boilers, tapping into a addressable market of several hundred billion RMB.
• Currently in an initial phase, with national support policies beginning to emerge, offering visible domestic top-line growth for Building Technologies.

Regarding profit margins: Margin contraction in Building Technologies over the past year was largely due to losses at the acquired Toshiba Elevator business; Toshiba Elevator turned profitable this year, removing this negative drag and positioning Building Technologies margins for recovery.

(II) KUKA Robotics

KUKA grew over 10% in the first half, with domestic growth exceeding 20% (surpassing 30%+ domestically in Q2) alongside single-digit overseas growth. Domestic market share rose to second place, trailing the market leader by only around 200 units by volume; management expresses confidence in securing market leadership by late this year or in 2027 (Estun 10%, KUKA 9.7%, Inovance 9.2%).

Growth Drivers — Customer Diversification:

• New customer industry verticals include PCB, 3D printing (3D orifice plates), batteries, and semiconductors, which expanded rapidly this year.
• Revenue contribution from the automotive sector declined from over 65% two years ago to 40% this year, with customer diversification significantly improving revenue predictability.
• KUKA holds established competitive advantages in heavy-payload robotics, with custom models engineered for new industry clients generating incremental volume.

Breakthroughs in Proprietary Core Components:

• Harmonic Reducers: Achieved technical breakthroughs and reached volume production.
• Heavy-Duty Planetary Reducers: Successfully developed and currently ramping up production.
• RV Reducers: Accounting for roughly 30% of total KUKA robot body costs, this stands as the sole core component awaiting proprietary completion; breakthroughs are anticipated by late this year or early next year.

Path to Margin Expansion: KUKA's current EBITDA margin remains in the single digits, whereas international peers like FANUC and ABB operate in the triple digits. Driven by higher internal component sourcing ratios, workforce rationalization and cost containment in Europe, upstream procurement discipline, and downstream commercial expansion, margins will progressively repair upward. US operations delivered robust performance, achieving double-digit growth in both revenue and profit; European operations remained comparatively subdued. KUKA currently has no plans for a standalone listing.

(III) AIDC Thermal Management

Addressing thermal management demands from AI data centers, Midea has committed 1 billion RMB to build a dedicated liquid-cooling manufacturing facility, with division management expressing strong confidence.

• Product Portfolio: Broadened from legacy chillers and precision air conditioning to a full suite covering CDUs (Coolant Distribution Units), manifolds, fan walls, and cooling towers, with cold plates temporarily omitted due to capacity and aftermarket considerations.
• Customer Acquisition: Tier-one overseas accounts including Meta, Google, OpenAI, and NVIDIA are in active discussions regarding orders.
• Team and Capacity: Liquid cooling headcount has expanded to 300–400 personnel, backed by continuous increases in R&D and manufacturing capacity deployment.

Strategic Pivot: Midea previously favored standardized product lines (yielding high mass-production margins) and allocated lower initial investment to AIDC due to high customization requirements across clients and regions. Seeing high visibility in the AIDC market, the group increased R&D commitments, transitioning from a standardized product mindset toward building bespoke solution engineering capabilities.

V. Financials and Shareholder Returns

(I) Dividends and Share Repurchases

DPS (dividends per share) will remain stable with an upward bias, with BPS (book value per share) stability providing the foundation for predictable dividend distributions.

Repurchase Progress: The repurchase cap for the current year is 130 billion RMB, with over 80 billion RMB deployed to date, supplemented by 10–20 billion RMB carried over from the prior year's buyback program. Repurchase execution cadence tracks equity price performance, leaving approximately six months of execution runway prior to the next annual report window.

(II) Capital Expenditures

Annual capex will not exceed 15 billion RMB over the next three years, allocated primarily to facility optimization with an emphasis on overseas plants. Expanding revenue contributions from To B and overseas operations will drive structural margin expansion across the consolidated group.

(III) Foreign Exchange Management

Midea's foreign exchange gain/loss performance materially outperforms peers, underpinned by accumulated hedging discipline:

• Upon securing committed orders, price quotations are provided to clients based on baseline gross margin targets; once orders are booked, forward exchange rates are locked immediately against target gross margins to insulate profitability.
• Building on initial locks, financial derivatives including forward contracts and currency swaps are utilized to capture incremental yield.
• FX hedging instruments remain accessible to all market participants, but directional positioning and execution timing require accumulated experience that cannot be replicated easily across peer groups.

(IV) Balance Sheet

Free cash reserves stand at approximately 240+ billion RMB, maintaining conservative stability without material shifts. Interest-bearing liabilities total roughly 80 billion RMB.

(V) Investment Projects and Tax Rebates

• CXMT: Purely financial investment representing an approximate 0.76% equity stake (fair market value of 28.5 billion RMB as of September 18), carrying minimal operational impact. Mark-to-market fair value fluctuations flow through current period income statements without generating cash flow prior to divestment. Third-quarter reported net profit may exhibit favorable strength driven by fair value adjustments.

VI. Other Material Updates

• Humanoid Robotics: Midea maintains a pragmatic corporate approach and does not manufacture toy robotics. Humanoid robotics remains in the research phase; current robotic "brains" lack sufficient intelligence. Midea will allocate R&D capital to stay abreast of technological shifts, positioning the firm to execute rapid fast-follower deployment via brand and channel strengths once technology matures and volume production becomes viable.
• New Energy and Healthcare: These segments represent the two comparatively underperforming divisions across the group; facing intense competitive dynamics, neither has demonstrated notable progress, leading to the removal of standalone references to the new energy segment in this year's annual report.
• Logistics Subsidiary: Advancing through the regulatory pipeline, awaiting a Hong Kong listing.
• Broad Collaboration with Alibaba: Alibaba has made its domestic and overseas AIDC projects accessible to Midea across all product categories, establishing joint development agreements with supply executed by Midea; Midea utilizes Alibaba Cloud services, though enterprise office software remains unchanged due to high migration friction.
• AI Integration: AI tools (including diverse LLM platforms) are broadly deployed internally under localized architecture via unified internal APIs; however, critical regulatory disclosures such as annual reports continue to be drafted manually.
• 2H To B Growth Outlook: Building Technologies is projected to sustain solid operational momentum; KUKA's expansion pace will moderate relative to 1H, though high-single-digit growth remains achievable.

Section II: Q&A Minutes

Topic 1: Air Conditioning Industry Outlook and Competitive Landscape

Q: What is your outlook for the domestic air conditioning industry in the second half of the year?

A: The air conditioning sector faces overarching industry pressure throughout the year. Air conditioners served as the primary beneficiary of national subsidies; however, national subsidy scale declined this year, with allocation shifting from online to offline channels. Consumer demand remains cautious, with no discernible inflection point emerging to date. Upstream input costs (particularly copper) remain persistently high without material signs of retracement. Delivering nearly 1 percentage point of domestic growth in 1H was an exceptional outcome. In 2H, comparative pressures ease somewhat due to favorable base effects, though absolute demand pressure remains intact, and the peak installation card window (May to August) has drawn to a close.

Q: How should we evaluate policy if subsidies roll off in 2027? Will 2027 be better than 2026?

A: Even if subsidy policies are extended, the impact may prove limited—subsidies persisted this year, yet consumers adopted a wait-and-see posture, with no recurrence of the concentrated buying waves seen last year. Last year, consumers moved quickly to purchase once macro visibility cleared; that distinct dynamic was absent this year. 2027 is projected to show improvement over 2026.

Q: Did August installation cards register positive growth? Did peer manufacturers experience declines?

A: August installation card tracking did indeed turn positive. Other manufacturers experienced declines, with Midea outperforming peer operations; however, the directional trajectory for September remains uncertain.

Q: Has B端 air conditioning competition intensified this year? Have Haier and Hisense adopted aggressive pricing strategies?

A: B端 competition has indeed intensified this year, with Haier and Hisense deploying aggressive pricing strategies to compete for B端 enterprise accounts; nonetheless, Midea's B端 execution continues to outperform competitors. On the C端 side, Haier's performance was unexceptional.

Q: Why did Midea's high-end installation card metrics exceed Haier's low-end pricing by such a wide margin in August? What operational drivers enabled this?

A: Market share disparity is the primary factor: Midea's volume share far exceeds Haier's. Distribution channels also diverge: Haier originated in refrigeration, orienting installation and retail dealer networks primarily around refrigerators and washing machines; Midea holds an advantage in air conditioning, supported by proprietary installation infrastructure. Furthermore, Midea provides a broader product matrix, targeting discrete consumer tiers with differentiated brand and SKU portfolios across price points, alongside fundamentally distinct product and price tier positioning.

Q: What is the outlook for installation cards and market share trends over the coming months? Will more aggressive volume-gain strategies be deployed?

A: Air conditioning market share is already high (30%–35%), dictating a strategy centered on "stabilizing market share" rather than aggressive volume expansion. Pricing trended downward in 1H in response to soft demand, coinciding with rising raw material costs. Midea maintains hedging programs and scale efficiencies; competitors lacking scale cannot sustainably balance profitability, cost containment, and price matching. Marginal players face compounding pressure, enabling Midea to outperform peers even under a defensive posture. The overarching strategy entails: stabilizing share in air conditioning, gaining share in refrigerators, stabilizing share in washing machines + tumble dryers, capturing share via new product releases in kitchen appliances, and stabilizing share in small appliances.

Q: Did air conditioning market share expand in 1H? What were the specific online and offline figures?

A: Offline market share expanded significantly, reaching approximately 34%–38%, driven largely by absorbing market share from second- and third-tier brands. Online share contracted modestly, as Gree adopted an aggressive Q1 pricing strategy (introducing Kinghome air conditioners) to capture share. Second- and third-tier brands face widespread operational strain.

Q: What is the view on Xiaomi home appliances? Is Xiaomi's market share contracting?

A: Inquiries regarding Xiaomi appliances were frequent last year; market attention this year has shifted toward broader demand dynamics. Xiaomi's market share began declining in 4Q last year and continued its contraction through 1H this year, showing no material shifts.

Q: Gree expanded proprietary subsidies in July; will Midea follow suit or implement price increases?

A: Midea has not implemented follow-up subsidy measures at this time, nor are there active price increase plans.

Topic 2: Refrigerators, Washing Machines, and Brand Matrix

Q: What is the operational trajectory for the refrigerator and washing machine business?

A: Refrigerators and washing machines have long been anchored by replacement demand, rendering them less susceptible to national subsidy shifts. Midea's market share in these categories remains low relative to the market leader; the business has steadily competed and captured share by introducing new SKUs to round out category and price-tier coverage, sustaining stable overall performance.

Q: What is Hualing's revenue contribution and positioning?

A: Hualing achieved modest market share expansion, though precise volume splits are not calculated. Hualing focuses on extreme cost-to-performance models to manage cost spreads; inherently low retail pricing aligns with consumption downgrade trends. Positioned to counter brands like Xiaomi, it serves as a crucial defensive vehicle to preserve overall market share. Priced 500 to over 1,000 RMB below the master brand, entry models sell at 900+ RMB versus 2,000+ RMB for the core brand. Hualing is an acquired asset.

Q: What is the current operational status of the premium COLMO brand?

A: National subsidies provided material support to COLMO across the past two years. Two years ago, amid depressed foundational demand, growth targets were restrained under a "nurturing" approach. The brand delivered solid winter growth this year before softening moderately; its overall revenue contribution remains modest.

Topic 3: Cost Pass-Through and Gross Margins

Q: Can cost inflation be passed through to consumers? What were 1H gross margin trends, and what is the 2H outlook?

A: Passing cost inflation through to consumers is difficult amid soft consumer demand; cost increases are predominantly absorbed through internal operating efficiencies and cost-reduction initiatives. Price hikes attempted early in the year led to immediate market share losses, prompting subsequent reversals. Second-half trends are projected to track 1H: plastic pressures are easing, steel prices are softening, while copper remains stubbornly high. Price increases have been executed in the US; domestic increases remain paused pending pricing actions by leading industry peers.

Q: What drove the decline in Q2 selling expense ratios alongside simultaneous market share gains?

A: Selling expense ratios contracted across both domestic and international markets. The full-year target centers on defending operating margins, with overall operational expenses held under strict management; the domestic selling expense ratio target is an approximate 2 percentage point decline, with overseas targeted to decline by roughly 1 percentage point.

Q: What is the relative contribution of financial hedging versus scale advantages to the cost structure? Which drivers are structural and unmatchable by competitors?

A: Financial derivative instruments are available to all market participants; operational success depends on execution capability and directional accuracy. FX hedging is universally accessible, but efficacy is dictated by corporate experience and macro positioning. The direct gross margin contribution from commodity hedging was modest this year. Economies of scale represent the more durable, structural moat—sub-scale enterprises cannot secure supplier participation in structured hedging programs, nor can they compress costs via internal manufacturing efficiencies.

Q: Can export gross margins expand further relative to 1H? How do OEM and ODM dynamics differ?

A: OEM margins carry higher visibility and can be passed through directly to contract manufacturing clients. ODM pass-through is more challenging, requiring pricing adjustments in lockstep with leading industry peers given constrained pricing power. Overall costs are managed via internal cost-out and efficiency programs.

Topic 4: Overseas Operations and Global Footprint

Q: Over the long term, what drives domestic low-end growth, and how large is the overseas growth runway?

A: Domestic air conditioning volumes are already mature, with operational focus centered on C端 channels; incremental growth is predominantly overseas-driven, offering higher visibility. Blended overseas market share across OEM and proprietary brands stands at just over 6 percentage points, indicating vast runway. Leading players that fail to achieve a 10 percentage point share in proprietary brands are not serious competitors; Midea's proprietary brand market share outside China is below 2 percentage points, leaving significant room for expansion. Geographic focus remains fixed overseas, particularly Europe.

Q: What are the primary opportunities and headwinds across overseas markets?

A: Market potential remains substantial across regions. The primary headwind stems from geopolitical conflict and operational uncertainties in the Middle East. The US delivered solid 1H growth alongside expanding OEM volume; backed by manufacturing scale and extensive overseas plant networks, Midea gained diverted order flows as tariffs eroded traditional competitors' cost positions. Other regional markets remained generally stable.

Q: Are overseas facilities focused on assembly or local procurement? Are domestic suppliers joining overseas expansions?

A: Green-field plants initially focus on assembly, adding sheet metal fabrication, coating, and stamping in Phase II to localize production progressively. Core components (e.g., compressors) are sourced from China for overseas assembly, while low-tech inputs like packaging are procured locally. The Thailand facility engages local vendors. Overseas expansion by domestic suppliers remains gradual, as select vendors lack global operational capabilities; one core component vendor relocated to Thailand alongside Midea (also supplying Haier).

Q: How are tax rebates and transfer pricing managed across overseas facilities? Does the repeal of domestic tax rebates impact capacity allocation?

A: The operational architecture involves exporting Chinese components to overseas facilities for final assembly, involving intercompany transfer pricing. Transfer pricing models factor in normalized profit margins, with the core operating principle focused on safeguarding aggregate corporate margins. Operational flexibility and internal capacity allocation provide mitigation buffers, resulting in minimal net impact on Midea.

Topic 5: KUKA Robotics

Q: What is the outlook for KUKA's domestic growth in 2H and full-year performance?

A: Full-year KUKA operations are comfortably positioned to achieve high-single-digit expansion. Regionally, Europe remains subdued, while the US exhibits robust momentum with double-digit revenue and profit growth. Domestic volume surged by over thirty percentage points in Q2; sustaining 30%–40% growth rates through Q3 and Q4 carries uncertainty, though current order intake remains favorable. Demand fundamentals remain sound across core verticals (NEVs, semiconductors, batteries, 3D printing).

Q: What is KUKA's domestic market share and competitive standing? Are there plans for an independent IPO?

A: Domestic market share has advanced to second place, trailing the market leader by approximately 200 units by volume; management is confident in securing the No. 1 domestic volume position by late this year or in 2027. Primary competitors include Inovance, Estun, and FANUC. There are currently no plans for a standalone listing.

Q: Will KUKA enter toy robotics or humanoid robotics?

A: KUKA will not manufacture toy robots, reflecting a disciplined, pragmatic corporate philosophy. Humanoid robotics is actively researched, though it remains in laboratory evaluation; current algorithmic "brains" are not sufficiently smart. The strategic approach focuses on targeted R&D to avoid technical obsolescence; once intelligence models mature and commercial volume manufacturing becomes viable, Midea can execute rapid follower deployment leveraging existing brand equity and distribution networks.

Topic 6: Building Technologies and AIDC Thermal Management

Q: Is AIDC thermal management structurally difficult to monetize? What is Midea's capital commitment?

A: Midea has invested 1 billion RMB to build a dedicated liquid-cooling manufacturing facility, and the business unit maintains high commercial confidence. The product portfolio has broadened beyond chillers and precision air conditioning to encompass CDUs, manifolds, fan walls, and cooling towers across the stack (excluding cold plates). Tier-one global accounts including Meta, Google, OpenAI, and NVIDIA are in active procurement discussions. Historical customer tracking was measured because Midea traditionally favored high-standardization product lines, whereas AIDC requires significant custom engineering. With market demand visibility now established, R&D outlays have expanded; liquid cooling headcount has scaled to 300–400 engineers, paired with accelerated manufacturing capacity additions.

Q: What is the revenue scale and customer acquisition progress for the AIDC business?

A: AIDC-related sales revenue fell below 1 billion RMB last year, targeting roughly 50% YoY growth this year. Active supply relationships include Huawei and Alibaba; ByteDance and Tencent are in customer qualification; overseas accounts in discussions or joint development include Meta, OpenAI, and Unity. Material top-line inflection is anticipated between 2H2027 and year-end 2027.

Q: What are the growth trends for the To B segment in the second half of the year?

A: Building Technologies should sustain stable operational expansion; KUKA's pace will normalize relative to its rapid 1H expansion, but high-single-digit growth remains intact. New energy and healthcare currently represent the group's comparatively weaker operating units.

Topic 7: Financials, Dividends, and Capital Operations

Q: Will Q3 net profit see a material boost from CXMT fair value adjustments? Does this mark-to-market gain form the base for dividend distributions?

A: Mark-to-market fair value adjustments on the CXMT equity holding are recognized in current-period earnings, but generate no cash flow prior to asset realization. Dividend policy is anchored in BPS stability; DPS will remain stable with an upward trajectory. Final fair value gains for the quarter cannot be definitively quantified at present.

Q: How much tax rebate was received? Does this cover the full year or 1H?

A: Confirmed tax rebates total approximately 60+ million RMB, representing 1H accruals rather than full-year figures. While formally notified, cash settlement is contingent on customs administrative processing; negligible amounts were booked in 1H due to pending cash receipt. Full-year operational guidance excludes CXMT mark-to-market adjustments and related non-recurring items.

Q: Can interest-bearing debt of approximately 80 billion RMB be broken down into domestic and US dollar tranches? Will the balance sheet contract?

A: Granular debt currency splits are not publicly broken down. Free cash balances stand at approximately 240+ billion RMB, reflecting conservative management with minimal structural fluctuation. Balance sheet contraction is actively being executed—returning capital to shareholders via enhanced dividend distributions and share buybacks represents balance sheet contraction in practice. Foregoing mega-acquisitions over the next three years further reflects balance sheet discipline.

Q: What is the capex outlook for 2026–2027?

A: Capital expenditures will not exceed 15 billion RMB annually over the next three years, directed primarily toward facility enhancements with a priority on overseas footprints. Rising revenue contributions from To B and overseas operations will provide structural margin enhancement across the consolidated group.

Q: Why does Midea consistently outperform peer companies in FX gain/loss management? What drives this differentiation?

A: The group has managed FX exposures across decades, and accumulated execution experience is critical. Core workflow: Upon securing committed orders, internal baseline gross margins are established for pricing; once customer orders are booked, forward exchange rates are locked immediately to insulate operating gross margins. On top of baseline hedges, corporate treasury deploys currency forwards, cross-currency swaps, and related derivative instruments to generate additional yields. Derivative toolkits are universally accessible across corporate peers, but execution direction and timing require extensive historical experience.

Topic 8: Channel Reform

Q: What impact will the August lower-tier channel reform have on 2026–2027 sales?

A: Channel restructuring has no impact on underlying aggregate sales volume, shifting only the operational sales cadence. Operating cash flows in Q3 and 1Q2027 will experience notable YoY contraction: Under historical "cold opening" cycles, upfront distributor order prepayments provided positive working capital contributions, which have now been phased out. These cash flow headwinds concentrate in Q3 and Q1 annually; YoY volatility will moderate starting in 3Q2027. Operating cash flow will register pronounced declines in Q3 this year and 1Q next year.

Q: What was the primary strategic rationale for the channel reform? Was it intended to reduce costs?

A: The restructuring was not designed for cost reduction. Amid soft end-consumer demand, repeatedly providing channel incentives to compel distributor inventory loading and prepayments impaired dealer margins, fostering a vicious cycle. The objective is to partner with distributors through cyclical downturns, while leveraging healthier channel dynamics to attract distributors from rival air conditioning brands to switch to Midea.

Q: What were overall channel inventory levels for air conditioning in 1H? Who assumes inventory risk following the reform?

A: Midea's inventory profile remains healthy, consistently managed at 1–2 months, outside of transient pre-618 promotional builds in April. Post-reform, inventory holding shifts onto Midea's balance sheet, but total omni-channel inventory has decreased. Channel inventory held by distributors was historically opaque, with combined distributor and corporate inventories spanning 3–4 months; distributor holdings are now fully transparent, allowing omni-channel inventory to be maintained at 1–2 months, compressing aggregate channel inventory. The operating model functions on an on-demand order fulfillment basis: dealers order only against verified demand, with consumer checkout triggering upstream replenishment.

Q: Could the air conditioning channel model revert to historical practices? What is the status of other product categories?

A: Excluding air conditioning, other product categories transitioned to order-based fulfillment long ago. Air conditioning had lagged, but following this restructuring, the model is not expected to revert to legacy practices. While inventory holding shifts to the company balance sheet, aggregate channel inventory has declined.

Topic 9: Strategic Planning and Other Matters

Q: What are the strategic priorities for Q4 and next year? Will the group pursue more aggressive market share expansion if macro demand remains subdued?

A: Annual budget formulation for next year is currently underway (initiating annually across September and October), with no explicit operational targets finalized at this stage. The core strategy focuses on defending existing market share rather than pursuing aggressive external expansion. Operational mandates remain: defend share in air conditioning, gain share in refrigerators, stabilize share in washing machines + tumble dryers, gain share through new product introductions in kitchen appliances, and stabilize share in small domestic appliances. The overarching strategic commitment to rank "first or second" across core categories remains unchanged.

Q: Is the spin-off listing of the logistics subsidiary still moving forward?

A: The transaction remains in progress, awaiting a Hong Kong listing.

Q: Does the CXMT equity interest represent a purely financial investment?

A: CXMT is a purely financial equity holding; the 0.76% ownership position carries minimal strategic operational influence.

Q: How is AI utilized within Midea? Was the annual report generated using AI?

A: AI tools are utilized extensively across internal operations, drawing upon diverse LLM architectures deployed within localized environments via standardized internal APIs; however, core corporate publications such as annual reports continue to be authored manually by staff.

Q: Why was the new energy business omitted from discussions this year?

A: New energy and healthcare currently represent the two weaker operational segments within the group. Given severe industry competition, neither has demonstrated material commercial progress; standalone references to new energy were phased out of this year's annual report, with corporate disclosures now focusing on home appliances, robotics, and building technologies.

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