Midea Group Co. Ltd.

The stable outlook on Midea Group Co. Ltd. reflects our expectation that the company will maintain its strong market position in China's home appliances industry over the next 24 months and that Midea can effectively integrate recent acquisitions into its operations. We also expect Midea to maintain a debt-to-EBITDA ratio near zero and generate positive free operating cash flows, supported by the company's strong profitability, good working capital efficiency, and disciplined financial management. We could lower the rating if Midea takes on large acquisitions or makes high cash dividend payments beyond what has been reasonably built into our base-case forecast. Such transactions could reduce the transparency in the company's financial policy or the predictability of company's credit ratios. The debt-to-EBITDA

...Strong market position at China home appliances market with stable growth.Midea ranks the first or second in a number of household appliances segments in China, supported by its good brand awareness in various localized markets. Benefitting from strong industry growth, the company's revenues expanded at double-digit rates for the past two years. However, we expect the pace of growth to normalize to around 9%-10% over the next 12-24 months amid with slower industry growth, Midea's active optimization of channel inventory, and intense competition. We do not expect escalating U.S.-China trade tensions to have a material impact on Midea because its sales to the U.S. account for only 5% of the total. Strong cash balance and robust operating cash flows enable support to suppliers.Midea's robust operating cash flow generation and prudent cash management renders it with abundant cash balance. After investing in some fraudulent wealth management products (WMPs) in 2016, Midea has significantly scaled...

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