Key Message Summary
At the 2026 shareholders' meeting, Midea Group sent three key signals: it denied that Xiaomi is a competitor, stated that it will not engage in major acquisitions for the next three years and will distribute all of its net profits as dividends, and indicated that it is still exploring new growth opportunities. These decisions reflect Midea's current transformation challenges. While the company has managed to maintain its market share domestically at a considerable cost, its overseas OBM (Original Brand Manufacturing) business is approaching its target but has not generated significant profits. Past acquisitions have led to an "over-sized" structure with low efficiency. Midea is hesitant to experiment with new growth areas due to limited profit margins in the industry and can only temporarily appease shareholders through dividends. Overall, Midea is shifting from a focus on scale expansion to efficiency-driven growth, but it has not yet presented a compelling new growth strategy.
Detailed Analysis
1. Domestic Market Share Maintained, but at a Cost
Midea claims that the threat comes from within the company itself, and this is true in terms of market share: although the home appliance industry as a whole declined by 6.2% in Q1 2026, Midea's share in major household appliances remained stable at around 17%, its share in kitchen appliances increased to 20%, and its share in lifestyle appliances also exceeded 10%. However, this was achieved at a high cost. The sales expense ratio soared to 10.8% in Q4 2025, up 2.2 percentage points from the same period last year, mainly due to the company having to subsidize consumers after the reduction of government incentives. Increased expenses directly affected profits, with both the non-recurring net profit in Q4 2025 and Q1 2026 declining by 1.6-1.7 percentage points.
More importantly, Midea's domestic market share is approaching a ceiling. The top three players in the white goods industry already hold 60%-80% of the market, so further growth will require more investment (such as price wars and advertising). Therefore, Midea's focus in the domestic market is now on defending its position rather than expanding.
2. Overseas Business Is Performing Well, but with Limited Profits
Overseas business is a key focus for Midea. In 2025, overseas revenue reached 195.9 billion yuan, a year-on-year increase of 16%, faster than domestic growth. The proportion of its OBM products has also increased to 45%, close to the 50% target. However, overseas sales have not been more profitable than domestic ones; the gross profit margin is similar or even lower (similar to competitors like Haier and Gree). The reason is simple: when the proportion of OBM products is low, Midea has to share profits with overseas distributors, resulting in less profit.
Midea's management repeatedly emphasizes the need to increase the OBM business to over 50% as the only way to boost profitability overseas. If this goal is achieved, the stock price could rise; otherwise, the overseas growth story will be difficult to sustain.
3. Numerous Acquisitions Led to an "Over-Sized" Structure
In recent years, Midea has acquired companies such as Kuka (robots), Wandong Medical, and Lingwang Elevators, and entered the semiconductor and new energy sectors. However, it now states that it will not engage in major acquisitions for the next three years, acknowledging that these past moves did not meet expectations. Data shows that Midea's Return on Investment Capital (ROIC) has been declining since 2016. In Q4 2025, its free cash flow was negative by 8.2 billion yuan, 10.4 billion yuan less than in 2024. In other words, while Midea's revenue has increased from 200 billion to 400 billion yuan, the additional investment has not led to higher profits; instead, it has become a burden. For example, Kuka has not yet become a profitable asset, Wandong Medical integration is still in its early stages, and the new energy division has not created synergies. Therefore, the pause on acquisitions is a step towards correcting these issues, but finding new directions remains challenging.
4. Seeking New Growth Opportunities, but Without Clear Paths
Fang Hongbo mentions the need to "become resilient against economic cycles" and develop a "second growth curve," yet admits that no one has a clear solution. The situation is difficult for several reasons:
- Lack of Industry Growth: The home appliance industry's total revenue only increased by 0.1% in 2025, indicating a stagnant market where giants must compete for existing shares at higher marketing costs.
- Limited Profit Margins: The home appliance industry has thin profit margins, and even small fluctuations (such as rising material prices or price wars) can strain cash flow. Unlike Samsung, which can diversify into higher-profitting sectors like semiconductors, Midea has limited room for error—mistakes in these areas could significantly impact profits and the stock price.
Therefore, Midea's approach to its medical business is a mix of pragmatism and realism: it will pursue opportunities if feasible, but retreat if necessary, due to lack of financial resources to gamble.
5. Dividends as a Temporary Solution
Midea plans to distribute all net profits as dividends, which may satisfy shareholders for now, but this is not a long-term solution. Dividends indicate that the company has cash on hand, but they do not prove its future profitability. What investors really want to see is how Midea can increase profit margins—perhaps by boosting brand value or finding new, high-profit businesses (such as robotics or specific segments of new energy).
If Midea continues to rely on dividends, its valuation will likely decline, as investors are interested in future growth potential, not just current dividend payments.
Conclusion
Midea's current challenges reflect those faced by many Chinese manufacturing giants: their scale has reached a limit, past acquisitions have been ineffective, and new growth opportunities are elusive. To break this deadlock, Midea needs to either build its overseas OBM business for greater profitability or find a truly profitable second growth strategy. Both steps are challenging, and the company is still in the process of figuring out the best approach. For investors, key indicators will be whether Midea can increase its OBM profit margin above 50% and make substantial progress with its second growth strategy—these will determine the future value of the company's stock.