Midea Electric drops after deal for Little Swan spooks investors

Shares in Midea Electric Appliances, the mainland's top electrical appliance maker, slumped by the 10 per cent daily limit yesterday as its acquisition of 24 per cent in washing-machine maker Wuxi Little Swan unnerved investors.

The stock, which slid to an intraday low of 42.02 yuan after Goldman Sachs cut its rating on the shares from neutral to sell, closed down 7.26 per cent at 43.30 yuan in Shenzhen yesterday.

'Our rising concern over Midea's export business and valuation in the medium term leads us to lower our rating,' Goldman said in the report. 'We view earnings risk from business integration execution and likely export weakness as the key medium-term negative catalysts.'

The Guangdong-based white-goods maker agreed to pay 1.68 billion yuan (HK$1.83 billion) in cash for a 24.01 stake in Shenzhen-listed Wuxi Little Swan, lifting its stake to 28.94 per cent from 4.93 per cent and giving it control of the company.

Midea, a well-known air-conditioner brand on the mainland, has been diversifying into other large home-appliance manufacturing to tap rising demand amid the country's improving living standards.

Last week it announced a share placement to raise 3.56 billion yuan, following a failed 10 per cent stake sale to a unit of Goldman Sachs.