20210901-招银国际-JS环球生活-01691.HK-Rapid_growth_and_stable_margin_are_achievable_8页_1mb

JS Global Lifestyle (1691 HK) Summary

Core Content and Key Insights

JS Global Lifestyle (1691 HK) is a company in the home appliance sector, with a focus on innovative products and growth in both China and international markets. The company's stock is currently rated as BUY, with a revised target price of HK$27.54, down from the previous HK$34.38. This reflects a more conservative outlook due to sector de-rating, while the current stock price is HK$19.52, indicating a strong upside potential of +41.1%.

The company has shown rapid growth and stable margins, driven primarily by its SharkNinja brand. In the first half of 2021, net profit surged by 137% YoY to US$193mn, while sales growth reached 48% YoY, outperforming the sluggish growth of its Joyoung brand. Despite a GP margin drop of ~3.1ppt due to increased costs and the absence of tariff refunds, NP margin expanded by ~3.2ppt, attributed to operating leverage and cost reductions.

Main Points and Analysis

Financial Performance

• Revenue Growth:
  • 1H20: 23%
  • 2H20: 51%
  • 1H21: 48%
  • 2H21E: 25%
• Net Profit:
  • 1H20: US$82mn
  • 2H20: US$263mn
  • 1H21: US$193mn
  • 2H21E: US$291mn
• Adjusted Net Profit:
  • 1H20: US$134mn
  • 2H20: US$285mn
  • 1H21: US$242mn
  • 2H21E: US$366mn

Profit Margins

• GP Margins: Remained stable at 40.3% for FY21E, slightly down from 41.5% in FY20A.
• NP Margins: Expanded from 8.2% in FY20A to 9.4% in FY22E.
• EBIT Margins: Increased from 12.5% in FY20A to 14.5% in FY22E.

Key Drivers of Growth

• Product Innovation: The launch of new and innovative products such as the Shark vacuum and Ninja foodi significantly contributed to growth.
• New Regions: Expansion into France and Germany, with plans to enter Spain and Italy.
• New Categories: Entry into personal care, cookware, cleaning, and kitchenware.
• Channel Inventory: Still healthy and below historical averages, suggesting strong demand and efficient inventory management.

Margin Outlook

• Despite headwinds like raw material price hikes and tariff resumption, the company managed to maintain stable margins through supply chain optimization, cost reductions, and ASP increases.
• The GP margin was at 41.2% in 1H20 and fell slightly to 40.6% in 1H21, but the NP margin still improved by ~3.2ppt.

Earnings Revisions

• FY21E/22E/23E NP estimates were revised upward by 24%/20%/20%, reflecting faster growth and operating leverage.
• Adjusted EPS increased from US$0.128 to US$0.207, with a 24.3% increase in FY21E.
• Gross margin improved from 39.8% in FY20A to 40.9% in FY22E.

Valuation and Peer Comparison

Valuation Metrics

• Current P/E: 14x for FY21E and FY22E, significantly lower than the China/International peers' average of 17x/21x.
• P/B: 3.0 for FY21E and 2.3 for FY22E, also below the industry average.
• Yield: Increased from 2.9% in FY19A to 3.6% in FY23E.
• ROE: Rose from 2.7% in FY19A to 14.9% in FY23E.

Peer Comparison

• JS Global has a P/E of 21.3x for FY1E and 18.3x for FY2E, which is more attractive compared to China peers' average of 24.2x/13.5x.
• International peers have an average P/E of 20.6x/19.4x, with JS Global showing stronger growth potential and better margin stability.
• The company's valuation is considered attractive relative to its peers, especially with its low P/E and high ROE.

Strategic Initiatives and Future Outlook

Strategic Initiatives

• SharkNinja is expected to continue outperforming in 2H21E, with sales growth of 27%/49% for Shark and Ninja, respectively.
• New Product Launches: In China, more vacuums are planned, including Vacuum floor cleaners and Robot vacuums.
• Market Expansion: The company is expanding into new regions and categories, enhancing its market share and diversification.

Future Outlook

• The company is confident in reasonably fast growth in 2H21E, driven by product innovation and market expansion.
• Earnings revisions suggest continued growth and improved profitability.
• The target price of HK$27.54 is based on a 20x FY22E P/E, which is lower than the previous 30x due to sector de-rating.

Shareholding and Performance

Shareholding Structure

• Mr. Wang Xuning (Chairman) & concert party: 56.43%
• CDH Fund: 10.66%
• Mr. Mark Rosenzweig: 7.87%
• RSU Holding entity: 4.88%
• Mr. Mark Adam Barrocas: 2.09%
• Free Float: 11.63%

Share Performance

• 1-month: -0.3% (Absolute) vs 1.3% (Relative)
• 3-month: -14.4% (Absolute) vs -2.4% (Relative)
• 6-month: 2.2% (Absolute) vs 16.0% (Relative)
• 12-month: 63.0% (Absolute) vs 62.3% (Relative)

Market Capitalization

• Mkt Cap: HK$68,215 million
• Avg 3 mths t/o: HK$230.82 million
• 52w High/Low: HK$26.50 / HK$12.22

Conclusion

JS Global Lifestyle (1691 HK) is a highly attractive investment with strong growth potential and stable margins. The BUY rating and revised target price reflect positive expectations for the company's performance in the coming years. The focus on product innovation and market expansion positions the company well for continued growth and profitability. The low P/E and high ROE further support its attractive valuation relative to peers.