Morgan Stanley: China Home Appliances — Shopping for Better Growth Potential
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Morgan Stanley expects persistent domestic demand weakness and cost pressures for China's home appliance sector in 2Q26, with major companies likely reporting flat to slightly lower domestic revenue. Net profit is dragged down by FX losses amid rising raw material costs and fading subsidy effects. However, the firm anticipates a sequential recovery in 2H26 as high-base effects fade, projecting high-single-digit revenue growth for Midea and Haier. Overseas expansion remains a critical growth driver. Emerging markets and the EU, which account for over 10% of Midea and Haier revenue, are exhibiting robust double-digit growth in 2Q26. Long-term, the firm views AI diffusion as a transformative force. Companies with scale, ecosystem capabilities, and optimized channels are positioned to capture market share. Midea is the top pick, rated Overweight with a target price of RMB 99.00 for A-shares and HKD 103.00 for H-shares, supported by a dual-engine strategy and attractive valuation at 13x 2026 P/E. Roborock is also Overweight, targeting RMB 140.00. Ecovacs is upgraded to Overweight with a RMB 66.00 target due to compelling valuation after a 30% pullback. Conversely, Gree is downgraded to Equal-weight despite its dividend appeal, as continuous air conditioner market share losses pressure earnings. Haier maintains Equal-weight, while Robam is kept at Underweight.
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