Midea Group Co. Ltd.

The stable outlook on Midea 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 within its operations. We also expect Midea to generate positive free operating cash flows and maintain a net cash position on an adjusted basis--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 ratio

...E-commerce stronghold will continue to strengthen Midea Group Co. Ltd.'s competitive position. Midea captures more online market share through its strong domestic brand name and comprehensive range of products. With a dominant position of about 30%-50% share in small home appliances and No.1 or 2 position in air-conditioner, refrigerators, and washing machine, we believe Midea will continue to consolidate the home appliance industry at the expense of small producers. Net cash position will sustain despite favorable shareholder return. We project Midea will continue its favorable shareholder return given its strong cash flow. This includes share buyback of Chinese renminbi (RMB) 6.6 billion and annual dividend of approximately RMB10 billion, representing a 45% payout. Despite high shareholder return, we expect Midea's net cash to accumulate with annual discretionary cash inflow of RMB6 billion¡RMB11 billion over the next two years. Midea will continue to invest in product innovation despite...

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