Gree Electric's Struggles Deepen as China's Home Appliance Giants Diverge
Performance gaps among China's three leading home appliance manufacturers have widened sharply, with Gree Electric Appliances posting a revenue decline while rivals Midea and Haier Smart Home continue to expand, according to third-quarter 2025 results. The divergence highlights mounting challenges for Gree's air-conditioner-dependent business model as the industry shifts toward product diversification and international expansion.
Gree reported a 6.62% year-on-year revenue decline in the first three quarters of 2025, contrasting sharply with Midea's 13.85% growth and Haier's 9.98% increase. The company's net profit rose just 1.71%, primarily through cutting sales expenses rather than revenue expansion, raising questions about the sustainability of its profit growth strategy.
The performance gap reflects deeper structural differences. Nearly 80% of Gree's revenue still comes from air conditioners, while competitors have successfully diversified product portfolios and overseas markets. Gree's gross margin on overseas sales trails domestic levels by 16.5 percentage points, compared with a 2-point premium for Midea and a 4-point discount for Haier.
Investors now face a choice between Gree's current dividend yield and the growth potential offered by its diversified rivals, as the company's cost-cutting approach appears increasingly tactical rather than strategic.
Revenue Gap Widens on Product Portfolio Differences
The revenue disparity among the three manufacturers has reached significant scale. For the first three quarters of 2025, Midea posted revenue of RMB 364.7 billion ($50.3 billion), followed by Haier at RMB 234.1 billion and Gree at RMB 127.6 billion. The gaps between each company now measure in the tens of billions of yuan.
Over a five-year period from 2020 to 2024, revenue growth trajectories diverged markedly. Midea's revenue reached 1.43 times its 2020 level, Haier's grew 1.36 times, while Gree's expanded just 1.11 times. The differential growth rates reflect varying success in product line extensions and international expansion.
Gree's attempts to diversify beyond air conditioners have yielded limited results. Its smart equipment segment, encompassing industrial robots and automation, accounted for less than 10% of revenue in the first half of 2025, generating only RMB 9.59 billion with volatile year-over-year growth. The segment has failed to establish a stable growth pattern that could meaningfully offset the company's dependence on its core air-conditioning business.
Profit Growth Masks Underlying Weakness
Net profit performance reveals similar divergence. For the first three quarters of 2025, Midea reported net income of RMB 37.88 billion, up 20.18% year-over-year, while Haier's RMB 17.37 billion represented 13.56% growth. Gree's RMB 21.46 billion profit increased just 1.71%.
Gross margins remain comparable across the three companies, ranging from 25.87% to 28.44%, with Gree holding the highest level. The gap in net profit margins stems primarily from differences in sales expense ratios, which correlate with product and brand diversity strategies.
Gree's sales expense ratio declined 3.23 percentage points in 2024 from the prior year, reducing absolute spending by RMB 7.4 billion, a 34.11% decrease. The ratio fell another 1.38 percentage points in the first three quarters of 2025. While the company attributed some reduction to reclassifying product warranty costs from sales expenses to cost of goods sold, operating cost ratios rose only 0.77 percentage points, indicating accounting changes explained only a small portion of the decrease.
Management cited channel transformation and digitalization initiatives, but industry observers note such programs typically require increased upfront investment before yielding efficiency gains. Inventory turnover improved to 83.49 days in 2024 from 92.5 days in 2023, a 10% decline that partially explains reduced warehousing and logistics costs. However, accounts receivable grew 5% in 2024, suggesting the company may have relaxed payment terms to support sales.
ROE Analysis Points to Revenue as Critical Factor
Return on equity for the first three quarters of 2025 remained above 15% for all three manufacturers, though Gree's declined nearly three percentage points year-over-year despite lower sales expense ratios. Midea and Haier posted slight improvements.
ROE decomposition reveals equity multipliers range narrowly from 2.5 to 2.7, leaving limited room for leverage-driven improvement. Gree leads in net profit margins but lags significantly in asset turnover at 36%, compared with 45% for Haier and 59% for Midea.
With equity multipliers and profit margins relatively stable, revenue growth emerges as the key determinant of future ROE trends. Gree's current reliance on cost reduction to maintain profitability appears unsustainable as a long-term strategy, while revenue trajectory will ultimately drive shareholder returns.
Dividend Yield Versus Growth Potential
As of November 7, market capitalizations stood at RMB 587.1 billion for Midea, RMB 233.4 billion for Gree, and RMB 224.2 billion for Haier, with price-to-earnings ratios of 13.09, 11.09, and 7.07 respectively.
Price-to-earnings-growth ratios based on first three-quarter profit growth rates favor Midea over its rivals. Market-to-ROE ratios place Midea and Haier roughly equal, with Gree appearing relatively cheaper on this metric.
Projecting forward based on current profit growth rates and dividend payout ratios, assuming profit growth continues and share prices remain constant, Midea's dividend yield would reach 7.97% in three years, marginally exceeding Gree's projected 7.89%.
The calculation assumes Midea can sustain profit growth supported by its diversified product portfolio, while questioning whether Gree's expense-reduction strategy can generate lasting earnings increases amid revenue declines. For value investors weighing current income against future growth prospects, the choice increasingly hinges on whether near-term dividend yields justify accepting limited growth potential versus accepting modestly lower current yields with stronger expansion prospects.