China Home Appliances – Divergence Widens as Demand Stays Weak

China’s home appliance market is under pressure, and the strain is no longer limited to individual categories. According to AVC (奧維雲網), retail sales of China’s home appliance market excluding 3C products fell 10% YoY to RMB604bn in 9M26, following declines of 6% in 1Q and 12.4% in 2Q. Air conditioners (ACs), major kitchen appliances, TVs and laundry appliances fell 15.9%, 10.3%, 9.0% and 7.1%, respectively. As demand weakens, the gap between industry leaders is also expanding where both Midea and Haier benefit from broader overseas exposure and more diversified businesses, while Gree remains more directly exposed to the downturn given its higher concentration in ACs.

Profitability Divergence Deepens: Gree was hit most directly by weakness in its core AC business. AVC data shows domestic AC retail volume falling 9.4% YoY in 3Q, while manufacturers’ domestic shipments have declined 25.5%, indicating faster channel destocking and more cautious replenishment, leaving upstream manufacturers under greater pressure. Given Gree’s high concentration in AC, its costs also fell much less than revenue, eroding its unit profitability. Noted that the improvement in Gree’s 1H26 overall GPM was largely driven by a lesser mix of low-margin businesses.  However, as its core business weakened in 3Q, this mix benefit faded.
 
Midea also faced pressure in traditional appliances, but thanks to the strong “ToB” businesses, total revenue reached RMB22.7bn (+2.8% YoY).  In 3Q26, the key “ToB” segments namely, Building Technologies, Robotics & Automation and Industrial Technology generated revenue of RMB9.3bn, RMB8.3bn and RMB5.16bn, up 8%, 10% and down 13.7% YoY, respectively.  Their combined share of total revenue rising to 21% from 19.7% in 3Q25. The overall GPM managed to recover QoQ and core OPM to remain broadly stable.

Haier was weighed down by weaker demand in China and North America, but Europe, emerging markets and continued gains in premium segments provided some respite. GPM fell from the 2Q26 peak, although lower expenses and improving overseas supply-chain efficiency helped cushion the impact.

Core Earnings Under Pressure Across the Board: The strong net profit reported by Midea and Haier were mostly one-off items. In terms of adjusted net profit, all three companies posted mid-teens to as high as 44% YoY declines. Gree was most affected by the weakness in its core AC business combined with a sharp contraction in GPM. Haier also faced pressure from lower revenue, FX losses and overseas integration costs. Midea has a more diversified business mix and thus seeing the least profit declines among the three.

Cash Flow and Balance-Sheet Trends Also Diverged: OCF weakened across all three companies in 3Q26, but for different reasons. Gree saw weaker cash collection, as softer demand and channel destocking began to feed through the cash cycle. In 3Q26, it scrapped its long-standing off-season advance-payment and stockpiling policy, cutting contract liabilities to RMB7.8bn at end-September 2026 from about RMB13.7bn at end-3Q25 (−43.2% YoY) and nearly halving them from RMB15.2bn at the start of the year.
Midea’s cash collection remained relatively stable; the decline in OCF was driven more by higher procurement payments and lower payables, which increased short-term working-capital requirements and appeared more related to settlement timing and business expansion than to a sharp deterioration in demand. Its cash position and funding capacity remain solid.
Haier continued to face higher working-capital and capex requirements from overseas localization and ongoing investment, resulting in weaker FCF conversion and higher net-debt pressure.

Our View: White goods demand has yet to stage a broad recovery in 3Q26. Profitability and OCF were generally under pressure, suggesting that improvements driven by a lower base and replacement demand remain incremental rather than a full-cycle rebound. Consumer willingness to increase discretionary spending remains weak, leaving near-term demand recovery highly dependent on policy support and replacement incentives. Channel destocking and cost pressure are also continuing to feed through to earnings, with ACs under the greatest pressure, while refrigerators, washing machines and overseas markets remain relatively more resilient.

We therefore maintain our previous preference for Midea (300 HK, HK$100.30, HK$65bn) within the sector, as its diversification and overseas businesses should continue to cushion weakness in traditional home appliances. The counter is trading at 14x FY26E & 13x FY27E P/E and 5.3% dividend yield. (Research Department)