Budget air con giant catches chill from tepid home economy, Middle East war

Aux Electric blamed its 13% revenue decline in the first half of 2026 on the Iran war, yuan appreciation and rising copper costs

Key Takeaways:

• Aux reported its revenue fell 13% in the first half of 2026, while its profit tumbled by 41%, as it blamed weak demand in China and the Iran war
• The budget air conditioner maker’s exports to Europe fell by 33.1% in the six-month period, even as most of its peers recorded strong gains in the market

By Edith Terry

Just a year after its Hong Kong IPO, Aux Electric Co. Ltd. (2580.HK) is having a hard time selling investors on its ability to maintain its position in an overheated global air conditioner market.

The company, known for its budget models, announced last week its revenue slid 12.9% year-over-year to 17.5 billion yuan ($2.6 billion) in the first half of this year, while its profit tumbled 40.8% to 1.1 billion yuan. Its gross margin fell by more than a percentage point to 18.1% from 19.5% a year earlier as it suffered from higher material costs, especially for copper wire, according to its midyear report.

Investors blew cold on the company after the latest announcement, sending its shares down 6.2% over the next three trading days in Hong Kong. At its Wednesday close of HK$9.29, the stock now trades well below its offer price of HK$17.42 last September.

Like many of its domestic rivals, Aux has found big business outside its home market, selling to 160 countries. At the time of its IPO last year, its customers were mainly distributors and other brands that bought its products as original design manufacturing (ODM) customers. The company is trying to sell more of its own-branded products as well, which typically carry higher margins. Its brands include including its Aux namesake, targeted at the mass market, as well as its higher-end Hutssom, the Aufit youth brand, and a new premium brand called ShinFlow. 

Most of its first-half revenue decline came from the Middle East, which Aux includes in its Asian sales territory. Revenue from Asia, accounting for 28.1% of the company’s total, fell by 18.8% in the latest six-month period. One of its largest customers is in the United Arab Emirates (UAE), which sits across the Strait of Hormuz from Iran, an area that has been the focus of the Middle East war this year.

Aux’s revenue from Europe fell by an even steeper 33.1% in the first half, making up 8.5% of the total, while Mainland China and North America fell 4.1% and 2.1%, respectively. China is still Aux’s largest market, accounting for 50.7% of its total sales in the first half of the year, while North America accounted for 6.2%.

Surging exports

China exported $3.76 billion worth of air conditioners in the first half of this year, up 43.2% year-over-year, including a 72.8% rise for the month of June alone, according to Chinese customs data.

Aux’s weak first-half performance in Europe in notable because air conditioner sales soared in that market this year amid repeated heat waves. Rival Midea (0300.HK; 000333.SZ), said sales of its PortaSplit portable air conditioners designed for Europe tripled in the first half of this year, while Haier (6690.HK) also reported strong growth in Europe for its heating, ventilation and air conditioning (HVAC) segment. And Gree Electric (000651.SZ) reported sales for the half-year rose by 92% in Denmark, Finland, the Netherlands and Norway, even as its overall revenue slumped 8.2%.

The Chinese market has been problematic for all the manufacturers due to a prolonged property slump and weak consumer spending. Domestic air conditioner sales fell by 13.1% in the first half of this year to 122.1 billion yuan, according to AVC data estimates.  

Aux and its peers have also been hit by rising costs beyond their control. Among those, copper prices rose by 15% year-on-year in the first half, while container shipping rates surged 80% in June due to fallout from the Iran conflict. The company also took a hit from a rising yuan, which has eroded the value of its products sold overseas in other currencies.

Bullish founder

Aux founder Zheng Jianjiang, who named his company after his Chinese zodiac sign, the ox, isn’t one to give up easily in the face of such challenges. Now 65, Zheng got into manufacturing in 1987 when he purchased a failing, township-owned clock parts factory. He began producing air conditioners in 1994, and became known as the “price butcher” after slashing prices of 40 of his models by 30%, claiming that his rivals marked up prices far above production costs.

He has kept up his low-cost tradition by sacrificing his gross margin, which, at 18.1% in the first half of this year, was well behind Gree’s 31.7% gross margin for consumer appliances and Midea’s 27.9% for its smart home solutions. Zheng also spends less than his peers on product development, with R&D expenses at less than 2% of revenue compared to just under 4% for Gree, Midea and Haier.

While its non-branded ODM business represented 38.1% of revenues in the first half of the year, that share has been declining as Aux focuses on the more profitable branded business, which increased to nearly 60% of revenue from 55% a year ago. Its new ShinFlow brand will expand into “overseas premium experience stores and high-end property channels,” Aux said, as part of its effort to move beyond its traditional low-end focus to more premium products that typically carry higher margins.

Aux also plans to put greater focus on its central air-conditioning business, which generated 10% of revenue in the six months, or 1.75 billion yuan, up from 9% in 2025. That business carried a notably higher gross margin of 27.6% in the first half of the year, compared with just 15.4% for household air conditioners. But in value terms, revenue from central air conditioners decreased in the first half of 2026 from the previous year due to the impact of yuan appreciation on overseas revenue.

Most analysts expect Aux’s revenues to be flat this year, which implies a return to year-on-year revenue growth in the second half after the weak first-half performance. Huaxi Securities expects the company to report 30.6 billion yuan in revenue this year, roughly the same as its 30.1 billion yuan in 2025, gradually increasing to 34.5 billion yuan in 2028. It sees the company’s net profit increasing from 2.2 billion yuan in 2026 to 2.7 billion yuan in 2028.

Huaxi recently initiated coverage of Aux with an “overweight” rating, noting its price-to-earnings (P/E) ratio is comparable to its peers. Aux currently trades at a P/E ratio of 8.7 times, ahead of 7.8 for Gree and 9.3 for Haier, but well below Midea’s 14.6. But with a market cap of just HK$14.89 billion, the company is considerably smaller than those three listed peers, which are each worth 10 times that amount and more.

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