China / Hong Kong Company Guide

Midea Group Company Limited

Version 5 | Bloomberg: 000333 CH Equity | Reuters: 000333.SZ
Refer to important disclosures at the end of this report

DBS Group Research . Equity 23 Jan 2017

BUY Automation – the next growth pillar

Last Traded Price ( 20 Jan 2017):RMB29.22 (CSI300 Index : 3,355)
Price Target 12-mth: RMB35.35 (21% upside) (Prev RMB33.03)
Potential Catalyst: Turnaround of Toshiba unit, Further margin
expansion
Where we differ: We are factoring in KUKA AG into FY17-18E forecasts
Analyst
Eric YEE, CFA +86 21 6888 3360 eric_yee@dbs.com
Mavis HUI +852 2863 8879 mavis_hui@dbs.com
What’s New
• Midea completed the acquisition of robot maker
KUKA AG in Jan 2017. The deal is earnings accretive
• KUKA AG should see good prospects to promote
automation across China as most factories remain
highly labour-intensive vs. developed countries.
• We also expect Midea to deliver satisfactory FY16
results on further improvements in 4Q16.
• We raise our TP to RMB 35.35. Maintain BUY.
Price Relative
RMB Relative Index
34.2
29.2
Maintain BUY as we are positive on the completion of German KUKA
AG acquisition by Midea. KUKA AG is forecasted to generate c.EUR
3.2bn (or RMB 23.4bn) revenue and c.EUR 136.1m (or RMB 996.5m)
earnings in FY17. These could translate into expansion of Midea's
revenue and earnings by c.15% and c.3% in FY17 after netting off
integration costs. We see this deal as a strategic diversification by Midea,
to introduce higher level of automation to its production lines, as well as
the entire manufacturing sector in China. Raised our TP to RMB 35.35
based on 12.7x FY17 PE (i.e. 2 standard deviation above average).
High growth potential in China. KUKA AG had undergone robust
growth in the past few years, and targeting to grow its top-line from
EUR 3bn in 2015 to EUR 4-4.5bn by 2020, and EBIT margin from 5%
in 2015 to c.7.5% by 2020. We believe that the target could be
achieved, with accelerated growth in China under the umbrella of
Midea Group. Its robot assembly plant in Shanghai is running on high
production and expansion is on the cards, including potential addition
of new factory around the Yangtze River Delta. We are confident with
the growth prospects of KUKA in China for three structural reasons: (1)
the increasing labour wage in the manufacturing sector, (2) low
automation within factories in China, as well as (3) an aging population.
Satisfactory FY16 results expected. In line with industry development,
we expect sequential improvement in 4Q16 for Midea, especially given
209
189

24.2 169 its status as the second largest air conditioner player in China - the air
19.2
149

129
conditioner industry saw c.33% y-o-y sales rebound in Oct and Nov
14.2
109
2016 according to China Market Monitor. Recall that Media’s 9M16
revenue increased by 4% and core net profit rose by 30% to RMB
9.2 89
Sep-13 Sep-14 Sep-15 Sep-16
Midea Group Company Limited (LHS)
Relative CSI300 Index (RHS)
12.2bn on better GP margin and efficiencies. We expect FY16 results to
Forecasts and Valuation stay largely in range, as raw material price pressure had been mitigated
FY Dec (RMB m) 2015A 2016F 2017F 2018F by average price hike. As for 2017, we believe that Midea would focus
Turnover 138,441 148,087 184,388 196,840
on the integration and turnaround of Toshiba unit, as well as
EBITDA 15,473 18,906 21,861 23,293
Pre-tax Profit 16,051 19,658 22,505 25,004 strategizing plans with KUKA AG.
Net Profit 12,707 15,562 17,816 19,794
Valuation:
Core profit 10,911 14,152 17,816 19,794
Core Profit Gth (%) 15.1 29.7 25.9 11.1 Our new TP of RMB 35.35 is benchmarked to FY17 PE of
EPS (RMB) 1.99 2.43 2.78 3.09 12.7x (previously based on 12-month rolling PE of 12.5x), equivalent to
Core EPS (RMB) 1.70 2.21 2.78 3.09 2 standard deviation above average, to reflect the consolidation of
EPS Gth (%) 21.0 22.5 14.5 11.1 KUKA AG's robot business and its expansionary prospects in China. We
Core EPS Gth (%) 15.1 29.7 25.9 11.1 anticipate potential re-rating of the counter on further development of
Diluted EPS (RMB) 1.70 2.21 2.78 3.09
DPS (RMB) 1.20 0.97 1.11 1.24
KUKA's expansion in medium-term. Maintain BUY.
BV Per Share (RMB) 7.69 11.09 13.12 18.77 Key Risks to Our View:
PE (X) 14.7 12.0 10.5 9.4
Slower-than-expected recovery in home appliance demand; fluctuation
Core PE (X) 17.1 13.2 10.5 9.4
P/Cash Flow (X) 7.0 8.7 6.2 9.6 of raw material prices, and unsuccessful M&A integration
P/Free CF (X) 7.7 10.0 6.9 11.7 At A Glance
EV/EBITDA (X) 9.5 8.0 7.9 7.1
Issued Capital (m shrs) 6,425
Net Div Yield (%) 4.1 3.3 3.8 4.2
P/Book Value (X) 3.8 2.6 2.2 1.6 Mkt. Cap (RMBm/US$m) 187,737 / 27,278
Net Debt/Equity (X) CASH CASH CASH CASH Major Shareholders
ROAE (%) 28.7 25.9 23.0 19.4 Midea Holding (%) 34.9
Earnings Rev (%): (0) 4 4 Free Float (%) 65.1
Consensus EPS (RMB) 2.30 2.63 2.96 3m Avg. Daily Val. (US$m) 130.0
Other Broker Recs: B: 18 S: 0 H: 1
ICB Industry : Consumer Goods / Household Goods
Source of all data on this page: Company, DBSV, Thomson Reuters, HKEX

ASIAN INSIGHTS VICKERS SECURITIES

sa- CW
Company Guide
Midea Group Company Limited

WHAT’S NEW
ACQUISITION OF KUKA AG
Expansion in China. With strong position in the European
Transaction completed on 6 Jan 2017. Midea announced on
market, KUKA AG will focus expansion in high-growth regions
30 Dec 2016 that it received the final approvals from CFIUS
of Asia. The group targets to derive c.30% of group revenue
(The Committee on Foreign Investment in the United States)
from Asia in medium term. Its primary focus is the Chinese
and DDTC (Directorate of Defense Trade Controls) for its
market, which currently contributes c.15% of group revenue.
acquisition of KUKA AG, and swiftly had the transaction
KUKA AG’s headquarter for Asian business is in Shanghai,
completed on 6 Jan 2017.
where a hub bundling various functions was established in 2016.
Its robot assembly plant was opened in Greater Shanghai area
To recap, Midea has garnered 94.55% of KUKA's AG since
back in 2013, with its workforce rising from 696 employees in
the announcement of takeover offer on 19 May 2016. With
2014 to over 1,000 in 2015, and production already meeting a
an offer price of EUR 115 per share to acquire 81.04% shares
large proportion of local demand by 2015. There are also plans
(as Midea already owned 13.51% of KUKA AG prior the
for new factory, potentially in the Yangtze River Delta Region.
takeover offer), the price tag works out to be c. EUR3.7bn (or
RMB 27.1bn) for shareholdings of 81.04%. This values the
We believe that KUKA AG's expansion in China could be
transaction at c.33x FY17 PE, which is fairly in-line with the
accelerated under Midea Group's umbrella. Midea can leverage
c.39x average FY17 PE of A-share robots & automation sector.
its status as the industry leader to promote automation along
the value chain e.g. upstream and downstream partners. The
The deal is earnings accretive. We expect the consolidation of
group itself is a key customer of KUKA AG, spending c. RMB 1-
KUKA AG to expand Midea's revenue and earnings base by
1.5 bn each year on automation. It is understood that there
c.15% and c.6% in FY17 initially. KUKA AG is forecasted to
would be further room for higher automation, as currently the
generate c. EUR 3.2bn/ RMB 23.4bn revenue and c. EUR
robots are being used for standardized procedures e.g.
136.1m/ RMB 996.5m net profit in FY17 as per Bloomberg
packaging, transportation, and paint spraying on products like
consensus. Recall that the deal consideration will be fully paid
air conditioners. Other high-skilled procedures such as welding
in cash, satisfied by a bridging loan offered by ICBC Bank
and inspection are still handled by manpower.
0.65% p.a. As a result, c. EUR 26m/ RMB 193m interest cost
will incur in FY17. Besides, a one-off transaction cost of EUR
Although KUKA AG's revenue contribution to Midea Group is
35m /RMB 256m will also be booked in FY17. On a net basis,
still relatively small, at c.13% currently, the high-growth
earnings accretion will then be reduced to c.3%. We
potential of robots and automation business could see KUKA
understand that management plans to gradually pay off the
AG emerging into a new earnings pillar of Midea in the
loan with its strong war chest of c. RMB 70bn monetary
medium-term.
assets.
Vast potential in China - 3 structural reasons. China is
Revenue breakdown of Midea - 2017E
identified as the key growth market for robot automation,
potentially due to three structural reasons: (1) rising labour
Motor +
Logistics wage in the manufacturing sector, (2) low automation in most
KUKA
3% Chinese factories now, as well as (3) aging population.
13%
Non-core
operations
5%
Air
conditioner Refrigerator
34% 7%

Small Toshiba Washing

household unit machine
appliances 9% 8%
21%

Source: Bloomberg Finance L.P., DBS Vickers

ASIAN INSIGHTS VICKERS SECURITIES

Page 2
 Company Guide
Midea Group Company Limited

Average manufacturing wage in China SOE Demographic Development in China

RMB '000 100%

70,000 25% 11
90%
60,000 33
80%
20%
50,000 70%
15% 60%
40,000 70
50%
30,000 10% 40% 55
20,000 30%
5%
10,000 20%
10% 19
0 0% 12
0%
2001

2003

2005

2007

2009

2011

2013

2015

2010 2050E

Manufacturing y-o-y growth Under 15 15 - 60 Over 60

Source: CEIC, DBS Vickers Source: KPMG, China 360, DVS Vickers

The average wage of manufacturing workers in China's state- According to KPMG, the working population in China,
owned unit has risen at CAGR of c.14% in the past 10 years. predominantly defined by age class of 15-60, is projected to
shrink by 15ppt from 70% of total population in 2010 to 50%
Robot density in 2050. This could pose as a difficult challenge for productivity
if more automation is not introduced.
Robots per 10,000 employees
1,600 1,414 Robotic development in China. Riding on the structural drivers
1,400 as mentioned above, China is picking up fast in the adoption of
1,149 1,141
1,200 industrial robots from a very low base.
1,000
734 Sales Volume of China Industrial Robots
800
600
400 305 unit
211 161
200 89 106 58 1
31 17 4 80,000 200%
0 70,000
Germany
Japan

USA

Brazil
UK

India
China

150%
60,000
50,000 100%
40,000
Automotive General industry
30,000 50%
20,000
Source: IFR World Robotics 2014 (published Sept 2015), DBS Vickers 0%
10,000
The robot density within factories in China, measured by robots 0 -50%
2007

2008

2009

2010

2011

2012

2013

2014

2015

per 10,000 employees, is still low at 305 even for automotive

industry, and as low as 17 for general industry, signifying vast
potential for more automation. Sales y-o-y growth

Source: Askci.com (中国产业研究院）, DBS Vickers

Sales volume of Industrial robots in China has grown by almost

10 times from 6500 units in 2007 to 68,459 units in 2015, with
exponential growth starting from 2010 at CAGR of c.36%.

ASIAN INSIGHTS VICKERS SECURITIES

Page 3
Company Guide
Midea Group Company Limited

Applications of industrial robot in China KUKA AG - key company financials

FY Dec (EURm) 2012A 2013A 2014A 2015A

Revenue 1,739 1,775 2,096 2,966
Cost of Goods Sold (1,346) (1,329) (1,572) (2,265)
Gross Profit 393 445 523 701
Others
25% Other Opg (Exp)/Inc (277) (309) (379) (562)
Operating Profit 116 136 144 139
Automotive Other Non Opg (Exp)/Inc (14) (30) (22) (9)
37% Associates & JV Inc - - (3) (4)
Net Interest (Exp)/Inc (13) (13) (6) (1)
Exceptional Gain/(Loss) - - - -
Metals Pre-tax Profit 90 94 113 126
Fabrication
15% Tax (34) (35) (45) (39)
Minority Interest - - - 1
Tool & Preference Dividend - - - -
Machineries Net Profit 56 58 68 87
23%
Growth
Revenue Gth (%) 21.1 2.0 18.1 41.5
Source: Askci.com (中国产业研究院）, DBS Vickers Opg Profit Gth (%) 76.4 16.8 6.2 (3.7)
Net Profit Gth (%) 86.6 4.9 16.8 27.5
Quite similar to the revenue split of KUKA AG, the primary
application of industrial robots in China takes place within the Margins & Ratio
automotive sector at 37%, following by electrical tools and Gross Margin (%) 22.6 25.1 25.0 23.6
machineries (23%), metal fabrications (15%) and others Opg Profit Margin (%) 6.7 7.7 6.9 4.7
(25%). Net Profit Margin (%) 3.2 3.3 3.2 2.9
ROAE (%) 20.3 17.3 15.1 13.8
Production of Industrial Robots in China ROCE (%) 12.3 12.1 10.4 9.0
Div Payout Ratio (%) n.m. 11.7 15.0 19.5
unit
B. Sheet Items
8,000 70%
Net Cash/(Debt) 43 147 33 200
7,000 60% Net Debt/Equity (X) Cash Cash Cash Cash
6,000 50% Inventory Turn (days) 55.4 54.9 53.2 45.9
5,000
40%
4,000 Cash Flow Items
30%
3,000 Net Operating CF 118 221 163 167
2,000 20% Free CFPS (EUR) 2.7 4.6 2.2 2.1
1,000 10%
Source: Bloomberg Finance L.P.
0 0%
May-16

Oct-16
Mar-16

Apr-16

Sep-16
Aug-16
Jun-16

Jul-16
Jan & Feb

Overview of KUKA AG. Together with Switzerland’s ABB

Production
Source: CEIC, Askci.com (中国产业研究院）, DBS Vickers
The production volume of industrial robots in China stood at
5,687 units in Oct 2016, up c.15% y-o-y. Production growth
during Jun-Aug 2016 was especially robust at >40%.
Accumulated production volume was 56,604 units during
Jan-Oct 2016 (up 29%), with full year estimate at 80,000
units (pending actual data release). It is estimated that
production volume in 2017 will surpass 100,000 units.
(ABBN.VX), Japan’s Fanuc (6954.JP) and Yaskawa Electric
yoy growth (6506.JP), Germany’s Kuka AG is one of the four companies
which dominate the global market for industrial robots. The
group is a leading specialist in automation which offers
customers a full package of services from robots to turnkey
systems, made possible by the collaborations of 3 divisions,
which are the Robotics division, Systems division and Swisslog
unit:
1. Robotics division: The Robotics division develops,
manufactures and distributes the core component of
automation - the robot.

ASIAN INSIGHTS VICKERS SECURITIES

Page 4
 Company Guide
Midea Group Company Limited

2. Systems division: Core competence of Systems division lies 4. Metal industry: KUKA has vast experience in the
in the customized solutions for the automation of metalworking industry. Examples are arc welding and laser
manufacturing processes. welding.

3. Swisslog unit: Swisslog was a Swiss company acquired by
KUKA AG in 2014. Its Healthcare Solutions unit provides
automated solutions for hospitals, while the Warehouse &
Distribution Solutions unit helps warehouse and distribution
centers to achieve maximum throughput at minimum costs.
The key application industry has been automotive sector,
which accounts for c.50% of KUKA AG’s revenue. German
premium car brands such as Audi, BMW and Mercedez Benz
are all key customers of KUKA AG. Correspondingly, Europe
is the largest market, from which c.50% of revenue is
generated.
Sales split of KUKA AG - 2015
Sales split of KUKA AG - 2015
5. Energy: KUKA Industries offers solutions for different tasks
in the production of photovoltaic modules, from brick sawing,
cell handling and cross-soldering to the framing and
packaging of modules.
6. Healthcare: Automation solutions provide better efficiency
in hospitals, improve work procedures and reduce workload
on nursing staff, enabling them to concentrate more on
patients in the future.
7. E-commerce: Large volume of e-commerce fulfillment has
created huge market for rack feeders, high-bay warehouses
and storage systems, such as those supplied by Swisslog.

Swisslog
19%

Systems
50% General
Automotive
Industal
Robotics ~50%
~50%
31%

Source: Company, DBS Vickers

Source: Company, DBS Vickers

Apart from automotive industry, the other seven key sectors

in focus and its respective applications are as per below:

1. Aerospace: KUKA AG is an all-round supplier for the

aerospace sector and covers the entire manufacturing process
for customers, such as the riveting of components. One
important customer is Boeing in the US.

2. Electronics: The 3C market is one of the most important

markets in the future. Products for this market are
manufactured predominantly in Asia, where the level of
automation is still very low.

3. Consumer Goods: Robots are used for efficient processing,

picking, packing, stacking, labeling and palletizing in the
production of FMCGs.

ASIAN INSIGHTS VICKERS SECURITIES

Page 5
Company Guide
Midea Group Company Limited

Key customers of KUKA AG in General Industry EBIT of KUKA AG - 2011 to 2015

€mn %
160 80
140 70
120 60
50
100
40
80
30
60
20
40 10
20 0
0 -10
2011 2012 2013 2014 2015

Source: Company, DBS Vickers EBIT (LHS) YoY growth (RHS)

Source: Company, DBS Vickers

On decent growth trajectory. KUKA AG had undergone robust
growth in the past few years: 2011-2015 sales CAGR was 20%,
while its EBIT registered 17% CAGR during the same period. With strong position in European market, KUKA AG is focused
in expanding high-growth regions in Asia. The group targets to
Revenue of KUKA AG - 2011 to 2015 derive c.30% of group revenue from Asia in medium term
(2016E: c.15% of revenue), with a primary focus in the Chinese
€mn % market. Overall, KUKA AG is targeting to grow its top-line from
3,500 45 EUR 3bn in 2015 to EUR 4-4.5bn by 2020, and EBIT margin
3,000 40 from 5% in 2015 to c.7.5% by 2020.
35
2,500 KUKA's Outlook - 2020 Target
30
2,000 25
1,500 20
15
1,000
10
500 5
0 0
2011 2012 2013 2014 2015
Sales revenue (LHS) YoY growth (RHS)

Source: Company, DBS Vickers

Source: Company, DBS Vickers

ASIAN INSIGHTS VICKERS SECURITIES

Page 6
 Company Guide
Midea Group Company Limited

Peers valuation - Home Appliance Sector

T arg et Mkt 17F 18F

Cu rren c y Pric e Pric e R ec o m Cap F isc al PE P/Sales Y ield P/ B k ROE PE P/Sales Y ield P/ B k ROE
Co mp an y Name Co d e L o c al$ L o c al$ US$ m Yr x x % x % x x % x %
Ho me ap p lian c e man u f ac t u rer
Chigo Holding 449 HK HKD 0.106 n.a. NR 115 Dec n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a.
Haier Electronics* 1169 HK HKD 13.58 16.02 BUY 4,880 Dec 11.4 0.5 0.9 1.7 15.6 10.7 0.5 0.9 1.5 14.5
Hisense Kelon 921 HK HKD 7.11 n.a. NR 1,249 Dec 6.6 0.3 5.9 1.4 31.7 7.0 0.3 5.3 1.2 22.1
Sky worth Digital# 751 HK HKD 5.06 n.a. NR 1,953 Mar 6.5 0.3 4.9 0.8 13.2 5.7 0.3 5.4 0.7 13.1
TCL Multimedia^ 1070 HK HKD 3.59 n.a. NR 804 Dec n.a. 0.2 1.5 0.9 6.0 n.a. 0.2 1.2 0.9 7.4
Welling Holding 382 HK HKD 1.56 n.a. NR 576 Dec n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a.
HK - list ed st o c k s av erag e 8.2 0.3 3.3 1.2 1 6 .6 7.8 0.3 3.2 1.1 1 4 .3

Midea Group* 000333 CH CNY 29.22 35.35 BUY 27,278 Dec 10.5 1.0 3.8 2.2 23.0 9.4 1.0 4.2 1.6 19.4
GREE Electrical 000651 CH CNY 25.37 n.a. NR 22,176 Dec 9.4 1.3 6.4 2.5 26.7 8.5 1.2 7.1 2.2 25.8
Hisense Elec. 600060 CH CNY 17.13 n.a. NR 3,257 Dec 11.2 0.7 2.6 1.5 14.0 10.2 0.7 2.8 1.3 13.8
Konka Group 000016 CH CNY 4.38 n.a. NR 1,532 Dec n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a.
Qingdao Haier* 600690 CH CNY 9.96 13.42 BUY 8,824 Dec 10.6 0.4 2.8 1.8 16.9 8.9 0.4 3.4 1.5 18.2
Wuxi Little Swan 000418 CH CNY 33.4 n.a. NR 3,069 Dec 14.1 1.1 1.5 2.9 21.2 11.5 0.9 1.5 2.4 21.7
Hisense Kelon 000921 CH CNY 10.72 n.a. NR 2,123 Dec 9.9 0.5 3.5 2.6 27.1 9.9 0.1 4.2 2.2 21.0
Sichuan Changhong 'A' 600839 CH CNY 4.3 n.a. NR 2,884 Dec 25.7 0.3 0.3 1.3 4.9 19.5 n.a. 0.0 1.1 5.5
TCL Corp 000100 CH CNY 3.5 n.a. NR 6,211 Dec 13.6 0.3 1.7 1.5 12.4 11.4 0.2 2.0 1.3 12.3
Hangzhou Robam 'A' 002508 CH CNY 38.13 n.a. NR 4,045 Dec 18.5 3.9 1.8 5.3 32.0 14.5 1.0 2.6 4.3 31.9
J oy oung 'A' 002242 CH CNY 17.8 n.a. NR 1,985 Dec 17.4 1.6 3.6 3.6 21.3 15.5 0.2 4.2 3.4 21.9
Huizhou China Eagle 'A' 002579 CH CNY 13.68 n.a. NR 735 Dec n.a. n.a. n.a. n.a. n.a. n.a. 0.0 n.a. n.a. n.a.
V atti 'A' 002035 CH CNY 25.75 n.a. NR 1,361 Dec 22.1 1.7 1.8 4.5 20.0 17.5 0.4 n.a. 3.7 21.7
ZJ Meida Industrial 'A' 002677 CH CNY 11.87 n.a. NR 1,114 Dec 27.2 8.8 1.9 5.5 20.6 21.0 3.7 2.4 4.8 23.4
GD Xinbao Elect. 'A' 002705 CH CNY 16.22 n.a. NR 1,354 Dec 17.6 1.2 1.6 2.9 17.7 14.2 0.1 1.4 2.5 18.6
ZJ Aishida Elec. 'A' 002403 CH CNY 13.4 n.a. NR 682 Dec 24.3 1.6 0.6 2.2 9.4 20.6 0.7 n.a. 2.0 10.0
SH F ly co Elect. Appc.'A' 603868 CH CNY 46.62 n.a. NR 2,951 Dec 25.9 4.9 1.5 7.8 32.2 21.2 18.3 2.1 6.5 32.4
Zhejiang Supor 'A' 002032 CH CNY 35.3 n.a. NR 3,240 Dec 17.6 1.7 2.0 3.7 21.5 15.2 2.5 2.4 3.1 20.9
ZJ Haers V acuum Ctrs.'A' 002615 CH CNY 16.84 n.a. NR 669 Dec 26.3 2.7 4.1 5.3 20.8 20.7 1.4 8.3 4.8 25.3
Kingclean Elec.'A' 603355 CH CNY 43.98 n.a. NR 2,563 Dec 26.5 3.9 0.8 4.9 19.4 21.6 3.5 n.a. 4.1 19.2
A sh are st o c k s av erag e 18.3 2.1 2.3 3 . 4 2 0 .1 15.1 2.0 3.2 2 . 9 2 0 .2

G lo b al Peers
Philips Eltn.Koninklijke PHIA NA EUR 28.09 n.a. NR 27,844 Dec 15.7 1.0 2.9 2.0 13.0 14.2 2.9 3.0 1.9 13.4
De Longhi DLG IM EUR 22.74 n.a. NR 3,625 Dec 19.2 1.7 2.4 3.1 16.9 17.2 0.4 2.7 2.8 17.2
Electrolux 'B' ELUXB SS SEK 232.6 n.a. NR 7,978 Dec 13.8 0.6 3.2 3.4 26.5 12.7 n.a. 3.3 2.9 25.0
G lo b al Peers av erag e 16.2 1.1 2.8 2 . 8 1 8 .8 14.7 1.7 3.0 2 . 5 1 8 .5

# FY17: FY18; FY18: FY19

^ Core EPS

Source: Thomson Reuters, *DBS Vickers

ASIAN INSIGHTS VICKERS SECURITIES

Page 7
Company Guide
Midea Group Company Limited

Peers valuation - Robots & Automation Sector

Mkt 1 7F 18 F
Cu rrenc y Pric e Cap F isc al PE P/Sales Y ield P/B k RO E PE P/ Sales Y ield P/ Bk ROE
Comp an y Name Co de L o c al$ US$ m Yr x x % x % x x % x %
Chin a
Siasun Robot & Atmtn.'A' 300024 CH CNY 20.24 4,588 Dec 54.7 12.4 0.3 5.3 11.2 43.6 9.7 0.4 4.6 11.0
Csg Smrt.Sctc.'A' 300222 CH CNY 19.66 2,015 Dec 45.2 7.5 1.0 n.a. 16.2 35.7 6.0 n.a. n.a. 15.6
Dalian Zhiy un Atmtn.'A' 300097 CH CNY 53.24 1,156 Dec 34.2 6.3 1.2 5.1 12.5 30.4 6.0 n.a. 4.4 14.4
Nanjing Estun Atmtn.'A' 002747 CH CNY 30.35 1,216 Dec 86.5 10.0 0.3 6.8 9.3 61.8 7.7 0.4 6.7 12.4
Mesnac 'A' 002073 CH CNY 10.44 1,424 Dec 52.2 3.5 n.a. 2.0 3.8 25.5 2.7 n.a. 1.8 7.3
Harbin Boshi Atmtn.'A' 002698 CH CNY 14.7 1,456 Dec 41.2 11.1 0.6 4.0 10.4 n.a. n.a. n.a. n.a. n.a.
A v erage 52 .3 8. 5 0 .7 4 .6 1 0. 6 3 9. 4 6. 4 0. 4 4. 4 12 .1

O t h er glo bal p eers

F anuc# 6954 J P J PY 21355 37,942 Mar 31.5 7.7 1.9 3.0 9.8 28.1 7.3 2.1 2.9 10.4
Yaskawa Electric# 6506 J P J PY 1971 4,576 Mar 23.1 1.3 1.2 2.5 11.2 19.7 1.2 1.3 2.3 11.8
Abb Ltd N ABBN V X CHF 22.76 50,097 Dec 18.3 1.5 3.4 3.4 17.8 16.3 1.5 3.5 3.2 19.6
Azbil# 6845 J P J PY 3350 2,191 Mar 18.8 0.9 2.3 1.5 8.1 17.6 0.9 2.4 1.4 8.1
Sensata Techs.Hldg. ST US USD 41.06 7,016 Dec 13.1 2.1 0.0 3.1 22.7 12.1 2.1 0.0 2.6 22.5
Holly sy s Atmtn.Techs. HOLI US USD 17.81 1,066 J un 9.1 1.9 1.6 1.3 16.5 7.8 1.7 1.7 1.2 16.6
A v erage 19 .0 2. 6 1 .7 2 .5 1 4. 3 1 6. 9 2. 4 1. 8 2. 3 14 .8

# FY17: FY18; FY18: FY19

Source: Thomson Reuters

ASIAN INSIGHTS VICKERS SECURITIES

Page 8
 Company Guide
Midea Group Company Limited

CRITICAL DATA POINTS TO WATCH Sales (RMBm)

250000
Earnings Drivers:
Domestic white goods sales. The PRC domestic home 200000 184,388
196,840

appliance industry had staged recovery since 2H16 following 141,668 148,087
150000 138,441
the subsiding of inventory issues. Stronger rebound trajectory
was seen in 4Q16 - seeing sales of 100000

air conditioner, washing machine and refrigerator segments

50000
in Oct-Nov 2016 rebounded by 32.9% y-o-y (29.7% in 3Q16),
9.6% (5.1% in 3Q16), and 6.6% (3.7% in 3Q16), 0
2014A 2015A 2016F 2017F 2018F
respectively. In the longer term, we are hopeful that the
“smart home theme” will be the next long term catalyst for Gross Margin (%)
consumption-upgrade demand. We are of the view that a
30
demand boom can be sparked once a mature range of smart 25.8
27.7 27.5 27.9
25.4
home appliances are well developed and could practically 25

power up a “smart home”. 20

15
Supportive margins. Aside from the general consumption
10
upgrade angle, Midea's overseas business (which makes up
c.35% of group revenue in 2016) is poised to contribute 5

better margins and bottom-line growth. This is a result from 0

2014A 2015A 2016F 2017F 2018F
the group's effort to slowly move from OEM & ODM (which
accounts for 70% of overseas revenue) to OBM through the
EBITDA margin (%)
fortification of its brand image. Potential rebound in raw
material prices (which are a significant gross margin 14
12.8
11.9 11.8
determinant) could also be largely offset by product price 12 11.2 11.2

hikes. 10

Foreign operational & currency exposure. It is known that 6

Midea’s overseas businesses contributed sizeable revenue of 4

>RMB50bn to the company (c.35%of group sales), with six 2

foreign production bases in Vietnam, Belarus, Egypt, Brazil, 0
Argentina and India and a total of c. 3,800 new overseas 2014A 2015A 2016F 2017F 2018F

branches with the acquisition of Toshiba home appliance unit

Operating Cash Flows (RMBm)
and KUKA AG, overseas revenue contribution could swell to
c.50% upon full year contribution in FY17. Aside from an 35,000
30,116
estimated >30% of FY17 group revenue to be denominated 30,000
26,764
in USD, 70% of Toshiba’s sales (or c.6% of FY17 group 25,000
24,789
21,552
revenue) are domestic-driven (generating Yen), while c.50% 20,000
19,573

of KUKA AG’s revenue (or >6% of FY17 group revenue) are 15,000
derived from Europe (Euro denominated). Foreign exposure, 10,000
especially in terms of USD, could be bliss amidst weakening 5,000
RMB, although it is important to watch out for a turn, if any, 0
given the significant proportion of such exposure. 2014A 2015A 2016F 2017F 2018F

Cash (RMBm)
70000
62,543
60000 58,127
50,959
50000 48,436

40000
32,334
30000

20000

10000

0
2014A 2015A 2016F 2017F 2018F

Source: Company, DBS Vickers

ASIAN INSIGHTS VICKERS SECURITIES

Page 9
Company Guide
Midea Group Company Limited

Leverage & Asset Turnover (x)

0.45 1.4
Balance Sheet:
0.40
As at 9M16, Midea’s own funds (the net amount of monetary 1.3
0.35
assets such as monetary funds, notes receivable and bank wealth 0.30 1.2
management products after long-term and short-term 0.25
1.1
borrowings, bonds payable and other interest-bearing monetary 0.20

liabilities) stood at c.RMB70.9 bn. The group’s own fund is still 0.15 1.0

standing strong with c. RMB 41.6 bn after taking in c. EUR 0.10

0.9
0.05
4bn/RMB 29.3 bn bridging loan for acquisition of KUKA AG.
0.00 0.8
2014A 2015A 2016F 2017F 2018F
Gross Debt to Equity (LHS) Asset Turnover (RHS)

Capital Expenditure
Share Price Drivers: RMBm
Turnaround of Toshiba home appliance unit. Midea completed 4,000.0

the takeover exercise for Toshiba’s home appliance unit on 30 3,500.0

3,000.0
Jun 16, with final price tag of JPY 51.4bn (approximately USD
2,500.0
512m / RMB 3.4bn). As mentioned in our earlier report on the 2,000.0
deal, an immediate dent in earnings is expected upon 1,500.0

consolidation, given the target’s loss-making position. However, 1,000.0

we believe that Midea would be able to integrate the target unit 500.0
0.0
well and extract synergies, given their more-than-20 years of 2014A 2015A 2016F 2017F 2018F

partnership, and eventually turn the target unit around, by Capital Expenditure (-)

leveraging on its core efficiency competence. More background ROE

details in our earlier report “Midea +Toshiba - A pact to deepen
strategic partnership” dated 31st March 2016. 25.0%

20.0%

15.0%
Key Risks:
Slower-than-expected recovery in home appliance demand; 10.0%

fluctuation of raw material prices, and higher-than-expected 5.0%

risks in overseas market
0.0%
Depending on external factors such as property sales and 2014A 2015A 2016F 2017F 2018F

weather conditions, recovery in home appliances especially air- Forward PE Band

conditioner segment could be delayed. Fluctuations in raw (x)
material prices such as steel and plastics could reverse margin 14.7

expansion. Poor integration post M&A could also weigh on the 13.7
12.7
company's own efficiency. +2sd: 12.6x
11.7
10.7
+1sd: 11.1x

9.7 Avg: 9.5x

Company Background: 8.7
‐1sd: 8x
Midea Group (“Midea”) is one of the largest global white goods 7.7
6.7
manufacturers and suppliers based in China. It mainly engages in 5.7
‐2sd: 6.4x

manufacturing and distributing air conditioners, refrigerators, Sep-13 Sep-14 Sep-15 Sep-16

washing machines and small household appliances (kitchen PB Band

(x)
appliances, water heaters etc).
4.1

Midea is the parent company of Shenzhen listed Little Swan 3.6

+2sd: 3.47x
(000418.CH) (a renowned washing machine manufacturer) with
3.1
53.0% stake, as well as Hong Kong listed Welling Holding +1sd: 3.06x

(382.HK) (an upstream manufacturer that supplies compressors 2.6 Avg: 2.64x

and electric motors to Midea), with 69% stake. 2.1

‐1sd: 2.22x

‐2sd: 1.81x
1.6
Sep-13 Sep-14 Sep-15 Sep-16

Source: Company, DBS Vickers

ASIAN INSIGHTS VICKERS SECURITIES

Page 10
 Company Guide
Midea Group Company Limited

Key Assumptions
FY Dec 2014A 2015A 2016F 2017F 2018F
Sales (RMBm) 141,668.2 138,441.2 148,087.0 184,388.4 196,840.2
Gross Margin (%) 25.4 25.8 27.7 27.5 27.9
EBITDA margin (%) 11.2 11.2 12.8 11.9 11.8
Operating Cash Flows
24,789.5 26,764.3 21,551.5 30,116.1 19,573.2
(RMBm)
Cash (RMBm) 32,334.1 50,959.2 48,436.4 58,126.6 62,542.8
Source: Company, DBS Vickers

Segmental Breakdown (RMB m)

FY Dec 2014A 2015A 2016F 2017F 2018F
Revenues (RMB m)
Air conditioner 72,705 64,492 61,070 61,870 67,208
Refrigerator 9,724 11,423 12,252 12,996 13,815
Washing Machines 9,974 12,018 13,784 14,555 15,668
Small household
32,710 35,446 37,664 39,588 41,914
appliances
Motor,Logistics,Noncore 16,556 15,063 15,570 15,818 15,996
KUKA AG 0 0 0 23,295 25,158
Total 141,668 138,441 148,087 184,388 196,840
Gross profit (RMB m)
Air conditioner 19,594 18,221 18,626 19,180 20,835
Refrigerator 2,342 2,648 2,941 3,184 3,564
Washing Machines 2,844 3,377 3,983 4,294 4,779
Small household
8,091 8,871 11,488 12,470 13,413
appliances
Motor,Logistics,Noncore 3,127 2,661 2,728 2,798 2,811
KUKA AG N/A N/A N/A 6,103 6,667
Total 35,998 35,778 41,013 50,713 54,972
Gross profit Margins (%)
Air conditioner 27.0 28.3 30.5 31.0 31.0
Refrigerator 24.1 23.2 24.0 24.5 25.8
Washing Machines 28.5 28.1 28.9 29.5 30.5
Small household
24.7 25.0 30.5 31.5 32.0
appliances
Motor,Logistics,Noncore 18.9 17.7 17.5 17.7 17.6
KUKA AG N/A N/A N/A 26.2 26.5
Total 25.4 25.8 27.7 27.5 27.9
Source: Company, DBS Vickers

ASIAN INSIGHTS VICKERS SECURITIES

Page 11
Company Guide
Midea Group Company Limited

Income Statement (RMB m)

FY Dec 2014A 2015A 2016F 2017F 2018F
Revenue 141,668 138,441 148,087 184,388 196,840
Cost of Goods Sold (105,670) (102,663) (107,074) (133,675) (141,868)
Gross Profit 35,998 35,778 41,013 50,713 54,972
Other Opng (Exp)/Inc (23,392) (23,158) (25,170) (31,983) (34,847)
Operating Profit 12,607 12,621 15,844 18,730 20,124
Other Non Opg (Exp)/Inc 1,312 2,810 2,399 2,476 3,083
Associates & JV Inc 95 421 484 581 697
Net Interest (Exp)/Inc (23) 200 932 719 1,100
Dividend Income 0 0 0 0 0
Exceptional Gain/(Loss) 0 0 0 0 0
Pre-tax Profit 13,991 16,051 19,658 22,505 25,004
Tax (2,344) (2,427) (2,972) (3,402) (3,780)
Minority Interest (1,144) (918) (1,124) (1,287) (1,430)
Preference Dividend 0 0 0 0 0
Net Profit 10,502 12,707 15,562 17,816 19,794
Net Profit before Except. 9,477 10,911 14,152 17,816 19,794
EBITDA 15,927 15,473 18,906 21,861 23,293
Growth
Revenue Gth (%) 17.1 (2.3) 7.0 24.5 6.8
EBITDA Gth (%) 40.9 (2.9) 22.2 15.6 6.6
Opg Profit Gth (%) 52.7 0.1 25.5 18.2 7.4
Net Profit Gth (%) 97.5 21.0 22.5 14.5 11.1
Margins & Ratio
Gross Margins (%) 25.4 25.8 27.7 27.5 27.9
Opg Profit Margin (%) 8.9 9.1 10.7 10.2 10.2
Net Profit Margin (%) 7.4 9.2 10.5 9.7 10.1
ROAE (%) 29.0 28.7 25.9 23.0 19.4
ROA (%) 9.7 10.2 10.6 9.1 8.3
ROCE (%) 24.1 22.0 21.8 17.6 13.9
Div Payout Ratio (%) 40.1 60.5 40.0 40.0 40.0
Net Interest Cover (x) 542.5 NM NM NM NM
Source: Company, DBS Vickers

Interim Income Statement (RMB m)

FY Dec 1H2014 2H2014 1H2015 2H2015 1H2016

Revenue 77,331 64,337 82,509 55,932 77,522

Cost of Goods Sold (57,343) (48,326) (59,879) (42,784) (54,866)
Gross Profit 19,988 16,011 22,630 13,148 22,656
Other Oper. (Exp)/Inc (11,771) (11,611) (13,434) (9,720) (12,591)
Operating Profit 8,216 4,399 9,196 3,428 10,066
Other Non Opg (Exp)/Inc 23 1,270 1,470 1,337 788
Associates & JV Inc 35 60 43 378 201
Net Interest (Exp)/Inc 474 (487) 48 151 1,124
Exceptional Gain/(Loss) 0 0 0 0 0
Pre-tax Profit 8,748 5,242 10,757 5,294 12,178
Tax (1,531) (813) (1,808) (619) (1,947)
Minority Interest (607) (537) (624) (294) (734)
Net Profit 6,610 3,893 8,324 4,382 9,496
Net profit bef Except. 6,610 3,893 8,324 4,382 9,496

Growth
Revenue Gth (%) N/A N/A 6.7 (13.1) (6.0)
Opg Profit Gth (%) N/A N/A 11.9 (22.1) 9.5
Net Profit Gth (%) N/A N/A 25.9 12.6 14.1

Margins
Gross Margins (%) 25.8 24.9 27.4 23.5 29.2
Opg Profit Margins (%) 10.6 6.8 11.1 6.1 13.0
Net Profit Margins (%) 8.5 6.1 10.1 7.8 12.3
Source: Company, DBS Vickers

ASIAN INSIGHTS VICKERS SECURITIES

Page 12
 Company Guide
Midea Group Company Limited

Balance Sheet (RMB m)

FY Dec 2014A 2015A 2016F 2017F 2018F

Net Fixed Assets 20,184 19,835 21,087 21,925 23,029

Invts in Associates & JVs 952 2,888 24,372 42,453 60,650
Other LT Assets 12,729 12,751 20,850 46,145 54,267
Cash & ST Invts 32,334 50,959 48,436 58,127 62,543
Inventory 15,020 10,449 12,957 16,264 14,732
Debtors 26,459 24,362 28,307 35,253 29,364
Other Current Assets 12,614 7,597 7,558 7,511 7,464
Total Assets 120,292 128,842 163,567 227,678 252,049

ST Debt 6,683 3,921 5,000 5,000 5,000

Creditors 50,207 35,676 46,463 67,069 58,086
Other Current Liab 16,253 32,407 32,407 32,407 32,409
LT Debt 19 90 10 29,280 25,000
Other LT Liabilities 1,399 716 716 716 716
Shareholder’s Equity 39,470 49,202 71,017 83,965 120,167
Minority Interests 6,261 6,830 7,954 9,241 10,671
Total Cap. & Liab. 120,292 128,842 163,567 227,678 252,049

Non-Cash Wkg. Capital (12,367) (25,674) (30,048) (40,448) (38,934)

Net Cash/(Debt) 25,632 46,948 43,426 23,847 32,543
Debtors Turn (avg days) 62.5 67.0 64.9 62.9 59.9
Creditors Turn (avg days) 154.0 157.0 144.1 158.7 164.7
Inventory Turn (avg days) 53.9 46.6 41.1 40.9 40.8
Asset Turnover (x) 1.3 1.1 1.0 0.9 0.8
Current Ratio (x) 1.2 1.3 1.2 1.1 1.2
Quick Ratio (x) 0.8 1.0 0.9 0.9 1.0
Net Debt/Equity (X) CASH CASH CASH CASH CASH
Net Debt/Equity ex MI (X) CASH CASH CASH CASH CASH
Capex to Debt (%) 21.0 64.4 56.7 9.2 11.7
Z-Score (X) NA NA NA NA NA
Source: Company, DBS Vickers

Cash Flow Statement (RMB m)

FY Dec 2014A 2015A 2016F 2017F 2018F

Pre-Tax Profit 13,991 16,051 19,658 22,505 25,004

Dep. & Amort. 3,320 2,852 3,063 3,131 3,169
Tax Paid (2,344) (2,427) (2,972) (3,402) (3,780)
Assoc. & JV Inc/(loss) (95) (421) (484) (581) (697)
(Pft)/ Loss on disposal of FAs 7 0 0 0 0
Chg in Wkg.Cap. 12,458 10,578 4,261 10,261 (1,661)
Other Operating CF (2,547) 130 (1,974) (1,798) (2,461)
Net Operating CF 24,789 26,764 21,552 30,116 19,573
Capital Exp.(net) (1,405) (2,583) (2,841) (3,165) (3,522)
Other Invts.(net) (7,296) 26,313 6,519 4,068 19,188
Invts in Assoc. & JV (20,162) (41,720) (21,000) (37,996) (17,500)
Div from Assoc & JV 0 0 0 0 0
Other Investing CF 0 0 0 0 0
Net Investing CF (28,862) (17,989) (17,322) (37,092) (1,834)
Div Paid (4,053) (4,908) (6,225) (7,126) (7,918)
Chg in Gross Debt (2,365) (4,837) (253) 24,280 (5,000)
Capital Issues 8 (1,000) 0 0 0
Other Financing CF (1,000) 1,868 (279) (498) (413)
Net Financing CF (7,410) (8,877) (6,757) 16,656 (13,331)
Currency Adjustments (8) 17 5 11 8
Chg in Cash (11,491) (85) (2,523) 9,690 4,416
Opg CFPS (RMB) 1.93 2.53 2.70 3.10 3.32
Free CFPS (RMB) 3.65 3.78 2.92 4.21 2.51

Source: Company, DBS Vickers

ASIAN INSIGHTS VICKERS SECURITIES

Page 13
 Company Guide
Midea Group Company Limited

Target Price & Ratings History

12- mt h
RMB
S.No. Dat e Closing T arget Rat ing
35.0 Pric e Pric e
1 23 4 5 6
30.0 1: 11-Mar-16 RMB29.00 RMB38.02 Buy
2: 29-Mar-16 RMB29.99 RMB35.97 Buy
25.0
3: 31-Mar-16 RMB30.53 RMB35.97 Buy
20.0 4: 5-Sep-16 RMB27.12 RMB32.10 Buy
5: 1-Nov -16 RMB27.15 RMB33.03 Buy
15.0
6: 21-Nov -16 RMB27.13 RMB33.03 Buy
10.0
5.0
0.0
Jan-16

Jan-17
Jun-16

Nov-16
Apr-16

Aug-16

Source: DBS Vickers

Analyst: Eric YEE, CFA

ASIAN INSIGHTS VICKERS SECURITIES

Page 14
 Company Guide
Midea Group Company Limited

DBSVHK recommendations are based an Absolute Total Return* Rating system, defined as follows:
STRONG BUY (>20% total return over the next 3 months, with identifiable share price catalysts within this time frame)
BUY (>15% total return over the next 12 months for small caps, >10% for large caps)
HOLD (-10% to +15% total return over the next 12 months for small caps, -10% to +10% for large caps)
FULLY VALUED (negative total return i.e. > -10% over the next 12 months)
SELL (negative total return of > -20% over the next 3 months, with identifiable catalysts within this time frame)

Share price appreciation + dividends

Completed Date: 20 Jan 2017 17:25:27 (HKT)

Dissemination Date: 23 Jan 2017 15:09:14 (HKT)

GENERAL DISCLOSURE/DISCLAIMER
This report is prepared by DBS Vickers (Hong Kong) Limited (“DBSVHK”). This report is solely intended for the clients of DBS Bank Ltd., DBS Vickers
Securities (Singapore) Pte Ltd. (“DBSVS”) and DBSVHK, its respective connected and associated corporations and affiliates only and no part of this
document may be (i) copied, photocopied or duplicated in any form or by any means or (ii) redistributed without the prior written consent of DBSVHK.

The research set out in this report is based on information obtained from sources believed to be reliable, but we (which collectively refers to DBS Bank Ltd.,
DBSVS and DBSVHK, its respective connected and associated corporations, affiliates and their respective directors, officers, employees and agents
(collectively, the “DBS Group”)) do not make any representation or warranty as to its accuracy, completeness or correctness. Opinions expressed are
subject to change without notice. This document is prepared for general circulation. Any recommendation contained in this document does not have
regard to the specific investment objectives, financial situation and the particular needs of any specific addressee. This document is for the information of
addressees only and is not to be taken in substitution for the exercise of judgement by addressees, who should obtain separate independent legal or
financial advice. The DBS Group accepts no liability whatsoever for any direct, indirect and/or consequential loss (including any claims for loss of profit)
arising from any use of and/or reliance upon this document and/or further communication given in relation to this document. This document is not to be
construed as an offer or a solicitation of an offer to buy or sell any securities. The DBS Group, along with its affiliates and/or persons associated with any
of them may from time to time have interests in the securities mentioned in this document. The DBS Group may have positions in, and may effect
transactions in securities mentioned herein and may also perform or seek to perform broking, investment banking and other banking services for these
companies.

Any valuations, opinions, estimates, forecasts, ratings or risk assessments herein constitutes a judgment as of the date of this report, and there can be no
assurance that future results or events will be consistent with any such valuations, opinions, estimates, forecasts, ratings or risk assessments. The
information in this document is subject to change without notice, its accuracy is not guaranteed, it may be incomplete or condensed, it may not contain
all material information concerning the company (or companies) referred to in this report and the DBS Group is under no obligation to update the
information in this report.

This publication has not been reviewed or authorized by any regulatory authority in Singapore, Hong Kong or elsewhere. There is no planned
schedule or frequency for updating research publication relating to any issuer.

The valuations, opinions, estimates, forecasts, ratings or risk assessments described in this report were based upon a number of estimates and
assumptions and are inherently subject to significant uncertainties and contingencies. It can be expected that one or more of the estimates on which the
valuations, opinions, estimates, forecasts, ratings or risk assessments were based will not materialize or will vary significantly from actual results. Therefore,
the inclusion of the valuations, opinions, estimates, forecasts, ratings or risk assessments described herein IS NOT TO BE RELIED UPON as a representation
and/or warranty by the DBS Group (and/or any persons associated with the aforesaid entities), that:

(a) such valuations, opinions, estimates, forecasts, ratings or risk assessments or their underlying assumptions will be achieved, and
(b)there is any assurance that future results or events will be consistent with any such valuations, opinions, estimates, forecasts, ratings or risk assessments
stated therein.

Please contact the primary analyst for valuation methodologies and assumptions associated with the covered companies or price targets.

Any assumptions made in this report that refers to commodities, are for the purposes of making forecasts for the company (or companies) mentioned
herein. They are not to be construed as recommendations to trade in the physical commodity or in the futures contract relating to the commodity
referred to in this report.

DBS Vickers Securities (USA) Inc ("DBSVUSA"), a U.S.-registered broker-dealer, does not have its own investment banking or research department, has
not participated in any public offering of securities as a manager or co-manager or in any other investment banking transaction in the past twelve months
and does not engage in market-making.

ASIAN INSIGHTS VICKERS SECURITIES

Page 15
 Company Guide
Midea Group Company Limited

ANALYST CERTIFICATION
The research analyst(s) primarily responsible for the content of this research report, in part or in whole, certifies that the views about the companies and
their securities expressed in this report accurately reflect his/her personal views. The analyst(s) also certifies that no part of his/her compensation was, is, or
will be, directly or indirectly, related to specific recommendations or views expressed in the report. The DBS Group has procedures in place to eliminate,
avoid and manage any potential conflicts of interests that may arise in connection with the production of research reports. As of 23 January 2017, the
analyst(s) and his/her spouse and/or relatives who are financially dependent on the analyst(s), do not hold interests in the securities recommended in this
report (“interest” includes direct or indirect ownership of securities). The research analyst(s) responsible for this report operates as part of a separate and
independent team to the investment banking function of the DBS Group and procedures are in place to ensure that confidential information held by
either the research or investment banking function is handled appropriately.

COMPANY-SPECIFIC / REGULATORY DISCLOSURES

1. DBSVHK and its subsidiaries do not have a proprietary position in the securities recommended/mentioned in this report as of 20 Jan
2017.

2. Compensation for investment banking services:

DBSVUSA does not have its own investment banking or research department, nor has it participated in any public offering of securities
as a manager or co-manager or in any other investment banking transaction in the past twelve months. Any US persons wishing to
obtain further information, including any clarification on disclosures in this disclaimer, or to effect a transaction in any security
discussed in this document should contact DBSVUSA exclusively.

3. Disclosure of previous investment recommendation produced:

DBS Bank Ltd, DBSVS, DBSVHK, their subsidiaries and/or other affiliates of DBSVUSA may have published other investment
recommendations in respect of the same securities / instruments recommended in this research report during the preceding 12
months. Please contact the primary analyst listed in the first page of this report to view previous investment recommendations
published by DBS Bank Ltd, DBSVHK, their subsidiaries and/or other affiliates of DBSVUSA in the preceding 12 months.

RESTRICTIONS ON DISTRIBUTION
General This report is not directed to, or intended for distribution to or use by, any person or entity who is a citizen or resident
of or located in any locality, state, country or other jurisdiction where such distribution, publication, availability or use
would be contrary to law or regulation.

Australia This report is being distributed in Australia by DBS Bank Ltd. (“DBS”) or DBS Vickers Securities (Singapore) Pte Ltd
(“DBSVS”) or DBS Vickers (Hong Kong) Limited (“DBSVHK”), which are exempted from the requirement to hold an
Australian Financial Services Licence under the Corporation Act 2001 (“CA”) in respect of financial services provided
to the recipients. Both DBS and DBSVS are regulated by the Monetary Authority of Singapore under the laws of
Singapore, and DBSVHK is regulated by the Securities and Futures Commission of Hong Kong under the laws of Hong
Kong, which differ from Australian laws. Distribution of this report is intended only for “wholesale investors” within
the meaning of the CA.
Hong Kong This report is being distributed in Hong Kong by DBSVHK which is licensed and regulated by the Hong Kong
Securities and Futures Commission.

Indonesia This report is being distributed in Indonesia by PT DBS Vickers Sekuritas Indonesia.

Malaysia This report is distributed in Malaysia by AllianceDBS Research Sdn Bhd ("ADBSR"). Recipients of this report, received
from ADBSR are to contact the undersigned at 603-2604 3333 in respect of any matters arising from or in connection
with this report. In addition to the General Disclosure/Disclaimer found at the preceding page, recipients of this report
are advised that ADBSR (the preparer of this report), its holding company Alliance Investment Bank Berhad, their
respective connected and associated corporations, affiliates, their directors, officers, employees, agents and parties
related or associated with any of them may have positions in, and may effect transactions in the securities mentioned
herein and may also perform or seek to perform broking, investment banking/corporate advisory and other services
for the subject companies. They may also have received compensation and/or seek to obtain compensation for
broking, investment banking/corporate advisory and other services from the subject companies.

Wong Ming Tek, Executive Director, ADBSR

Singapore This report is distributed in Singapore by DBS Bank Ltd (Company Regn. No. 196800306E) or DBSVS (Company Regn
No. 198600294G), both of which are Exempt Financial Advisers as defined in the Financial Advisers Act and regulated
by the Monetary Authority of Singapore. DBS Bank Ltd and/or DBSVS, may distribute reports produced by its
respective foreign entities, affiliates or other foreign research houses pursuant to an arrangement under Regulation
32C of the Financial Advisers Regulations. Where the report is distributed in Singapore to a person who is not an
Accredited Investor, Expert Investor or an Institutional Investor, DBS Bank Ltd accepts legal responsibility for the
contents of the report to such persons only to the extent required by law. Singapore recipients should contact DBS
Bank Ltd at 6327 2288 for matters arising from, or in connection with the report.

Thailand This report is being distributed in Thailand by DBS Vickers Securities (Thailand) Co Ltd. Research reports distributed are
only intended for institutional clients only and no other person may act upon it.

ASIAN INSIGHTS VICKERS SECURITIES

Page 16
 Company Guide
Midea Group Company Limited

United This report is produced by DBSVHK which is regulated by the Securities and Futures Commission of Hong Kong.
Kingdom
This report is disseminated in the United Kingdom by DBS Vickers Securities (UK) Ltd (“DBSVUK”). DBSVUK is
authorised and regulated by the Financial Conduct Authority in the United Kingdom.

In respect of the United Kingdom, this report is solely intended for the clients of DBSVUK, its respective connected
and associated corporations and affiliates only and no part of this document may be (i) copied, photocopied or
duplicated in any form or by any means or (ii) redistributed without the prior written consent of DBSVUK. This
communication is directed at persons having professional experience in matters relating to investments. Any
investment activity following from this communication will only be engaged in with such persons. Persons who do not
have professional experience in matters relating to investments should not rely on this communication.

Dubai This research report is being distributed in The Dubai International Financial Centre (“DIFC”) by DBS Bank Ltd., (DIFC
rd
Branch) having its office at PO Box 506538, 3 Floor, Building 3, East Wing, Gate Precinct, Dubai International
Financial Centre (DIFC), Dubai, United Arab Emirates. DBS Bank Ltd., (DIFC Branch) is regulated by The Dubai Financial
Services Authority. This research report is intended only for professional clients (as defined in the DFSA rulebook) and
no other person may act upon it.

United States This report was prepared by DBSVHK. DBSVUSA did not participate in its preparation. The research analyst(s) named
on this report are not registered as research analysts with FINRA and are not associated persons of DBSVUSA. The
research analyst(s) are not subject to FINRA Rule 2241 restrictions on analyst compensation, communications with a
subject company, public appearances and trading securities held by a research analyst. This report is being distributed
in the United States by DBSVUSA, which accepts responsibility for its contents. This report may only be distributed to
Major U.S. Institutional Investors (as defined in SEC Rule 15a-6) and to such other institutional investors and qualified
persons as DBSVUSA may authorize. Any U.S. person receiving this report who wishes to effect transactions in any
securities referred to herein should contact DBSVUSA directly and not its affiliate.

Other In any other jurisdictions, except if otherwise restricted by laws or regulations, this report is intended only for
jurisdictions qualified, professional, institutional or sophisticated investors as defined in the laws and regulations of such
jurisdictions.
DBS Vickers (Hong Kong) Limited
th
18 Floor Man Yee building, 68 Des Voeux Road Central, Central, Hong Kong
Tel: (852) 2820-4888, Fax: (852) 2868-1523
Company Regn. No. 31758

ASIAN INSIGHTS VICKERS SECURITIES

Page 17