20221031-招银国际-JS环球生活-01691.HK-A_robust_sales_growth_but_also_a_higher_opex_7页_1mb

CMB International Global Markets | Equity Research | Company Update Summary

Core Content

This report provides an update on JS Global Lifestyle (1691 HK), a company within the China home appliance sector, focusing on its financial performance, guidance revisions, and valuation analysis.

Main Points

• Sales Growth: In 3Q22, sales growth was robust, driven by successful product launches, overseas expansion, and market share gains. Shark Ninja's gross sales increased by 12% YoY (15% in constant FX), outperforming management's FY22E guidance of flattish growth.
• International Performance: International sales, particularly in the EU and Japan, saw significant growth of 11% and 29% respectively (or 30% and 43% in constant FX).
• Guidance Revisions: FY22E guidance was revised down due to higher A&P expenses, investments in the EU market, and FX losses from GBP and JPY depreciation.
• Net Profit Cut: Net profit guidance for FY22E was cut by about 15%, primarily due to increased A&P expenses, EU market investments, and additional retail discounts.
• Valuation: Despite the downward revision, the company's valuation at 8x FY23E P/E is considered attractive compared to the 5-year average of 17x and peers' average of 12x/15x. The target price was revised to HK$9.51, based on a 10x FY23E P/E.

Key Financial Highlights

• Revenue: FY22E revenue is expected at US$5,317 million, with a YoY growth of 3.2%. This is projected to increase to US$6,086 million in FY24E.
• Gross Profit: Gross profit for FY22E is expected at US$1,973 million, with a gross margin of 37.1%.
• Net Profit: Adjusted net profit for FY22E is estimated at US$395 million, with a net profit margin of 7.4%.
• EPS: Adjusted EPS for FY22E is expected at US$0.111, with a forecast of US$0.141 in FY24E.

Market Outlook

• FY22E Sales Growth: The company maintains a stable sales growth guidance, with a focus on continuous product launches, marketing activities, and Black Friday promotions.
• Gross Margin Guidance: The company expects a flattish gross margin for FY22E, due to both positive factors (absence of import tariffs, falling freight costs, and declining raw material prices) and negatives (increased promotional activities and FX losses).

Valuation Comparison

• Peer Valuation: JS Global Lifestyle is compared with other companies in the home appliance sector, including Joyoung, Vesync, Zhejiang Supor, and Midea Group. Its P/E and P/B ratios are lower than the industry average, suggesting potential undervaluation.

Target Price and Recommendation

• Target Price: Revised to HK$9.51, a 33.9% increase from the current price of HK$7.10.
• Recommendation: Maintain a BUY rating, reflecting the company's strong product performance and undemanding valuation.

Key Information

• Company: JS Global Lifestyle (1691 HK)
• Valuation: 8x FY23E P/E
• Target Price: HK$9.51 (from previous HK$11.51)
• Recommendation: BUY
• Valuation Band: Forward P/E ranges from 7.5x to 10x, with a 10x P/E used to determine the revised target price.
• Shareholding: Chairman Wang Xuning and his concert party hold 56.43%, while free float is at 22.63%.

Financial Summary

Income Statement Highlights

• Revenue: US$5,317 million for FY22E, US$6,086 million for FY24E
• Gross Profit: US$1,973 million for FY22E, US$2,303 million for FY24E
• EBIT: US$521 million for FY22E, US$679 million for FY24E
• Net Profit: US$395 million for FY22E, US$503 million for FY24E

Cash Flow Summary

• Operating Cash Flow: US$663 million for FY22E, US$637 million for FY24E
• Investing Cash Flow: US$-67 million for FY22E, US$-76 million for FY24E
• Financing Cash Flow: US$155 million for FY22E, US$142 million for FY24E
• Net Change in Cash: US$751 million for FY22E, US$703 million for FY24E

Balance Sheet Highlights

• Non-current assets: US$1,989 million for FY22E, US$1,948 million for FY24E
• Current assets: US$3,473 million for FY22E, US$5,095 million for FY24E
• Current liabilities: US$1,679 million for FY22E, US$1,891 million for FY24E
• Total Net Assets: US$2,653 million for FY22E, US$3,935 million for FY24E

Key Ratios

• Sales Mix: Shark Ninja dominates the sales mix at 72.4% for FY22E, with Joyoung at 27.6%
• Gross Margin: Expected to remain stable at 37.1% for FY22E
• EBIT Margin: Expected to decrease slightly to 9.8% for FY22E
• Net Profit Margin: Expected to decrease to 7.4% for FY22E

Conclusion

JS Global Lifestyle is a company that has shown strong performance in sales, particularly in international markets, but faces challenges in maintaining net profit growth due to increased operational and marketing expenses. Despite these challenges, its valuation remains attractive, and the company is recommended to maintain a BUY rating with a revised target price.