The great paradox of air conditioning will keep this Hong Kong IPO simmering

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The paradox of air conditioning is that the same technology that cools the air can cause higher temperatures in the long term. Air conditioning represents 4% of greenhouse gas emissions. But warmer temperatures and more frequent heatwaves around the world mean more people are turning to systems to keep them cool.

A key beneficiary of this trend was listing in Hong Kong. Shares of Chinese home appliance maker Midea Group jumped 10 percent in morning trading on its Tuesday debut. Midea raised $4 billion in the offering, which was already valued at the top of the traded range, making the listing the City’s largest in more than three years. Midea’s listing was eight times oversubscribed by institutional investors, a multiple even higher than its allocation to retail investors, reflecting strong demand across investor types.

Midea would have found the public markets less welcoming had it listed five years ago. Sales of household electrical appliances, including air conditioners, were deemed to have peaked in 2019. Air conditioner usage rates are high in Asia, including China, where Midea is the largest appliance manufacturer appliances and has long been a household name. Investors’ expectations for the growth of this segment have been reduced.

Rising temperatures and growing demand in markets outside of China have changed this in recent years. Earnings hit a record last year, with overseas sales accounting for more than 40 percent of total sales. Demand from markets such as India has grown rapidly, with sales of air conditioners expected to hit a record high this year.

In Japan, where more than 90 percent of homes already have air conditioning, shipments of air conditioners rose by nearly a fifth in July to 1.3 million units, rising for a fourth straight month as warmer temperatures arrived earlier than usual this year.

There is also the potential for further growth at home. As consumer spending remains weak, Beijing has launched an exchange policy for a wide range of products such as cars and appliances, encouraging people to replace outdated goods with newer models by offering subsidies.

Meanwhile, Midea has invested in industrial robots and logistics automation. Demand for these technologies is expected to grow in China, where a rapidly aging population has reduced its workforce. More than 400 million or 28% of the total population is expected to be over 60 by 2040.

The result is that a listing that would have received an absolutely cool reception a few years ago now has some long-term growth options to keep investors’ fires burning.

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