20211022-招银国际-JS环球生活-01691.HK-Concerns_on_logistic_constraint_overdone_6页_1mb

JS Global Lifestyle (1691 HK) Summary

Core Content

JS Global Lifestyle is a home appliance company with a focus on cleaning and food preparation products. The report discusses the impact of logistics and cost pressures on its financial outlook and provides an updated target price and valuation analysis.

Main Points

• Sales Growth Concerns:

  • SharkNinja's sales growth in 2H21E is expected to slow to ~20% YoY due to supply chain constraints in Europe, such as container shortages and truck driver shortages.
  • The report revised down the FY21E sales growth estimate for JS Global to ~25%, down from the previous 25.1%, due to logistic overhang and other cost pressures.

• NP Growth Adjustments:

  • Adj. NP growth for FY21E was revised down to 28% YoY from 44% due to higher logistic costs, rising chip costs for robot vacuums, potential higher retail discounts, and raw material inflation.
  • The report revised down FY21E/22E/23E NP estimates by 11%/10%/11%, respectively.

• Valuation:

  • The stock is currently trading at 12x FY22E P/E, which is lower than the average of 18x/20x for China/International peers.
  • The target price was cut to HK$22.35, based on a 18x FY22E P/E multiple, down from 20x due to logistics overhang.
  • The company's valuation is considered cheap compared to peers.

• Tariff Relief:

  • Potential tariff exemptions and refunds are expected to occur since October 2021 and 1Q22E, which could boost GPM by 3-4ppt in FY22E.
  • The report estimates potential refunds of US$30-40mn.

• Market Demand:

  • End demand remains robust, driven by economic recovery, subsidies, and the wealth effect.
  • Retailers like Walmart, Best Buy, and Amazon have strong orders, and sell-through exceeds sell-in due to low industry inventory.

Key Information

• Earnings Summary:

  • Revenue is projected to grow from US$5,249mn in FY21E to US$6,601mn in FY23E.
  • Adjusted NP att. is expected to increase from US$485mn in FY21E to US$656mn in FY23E.
  • Adjusted EPS is expected to rise from US$0.136 in FY21E to US$0.184 in FY23E.

• Earnings Revisions:

  • Earnings revisions show a downward trend across all financial metrics, with a notable impact on revenue, gross profit, EBIT, and adjusted NP att.
  • The adjusted NP att. margin is expected to be 9.2% in FY21E, up to 9.9% in FY22E, and further to 10.4% in FY23E.

• Financial Summary:

  • Net cash from operating activities is expected to be US$464mn in FY21E, rising to US$799mn in FY23E.
  • Capex and investments are expected to increase from US$110mn in FY21E to US$139mn in FY23E.
  • Net cash from financing is expected to decrease from US$207mn in FY23E to US$-261mn in FY21E.

• Balance Sheet:

  • Total net assets are projected to grow from US$463mn in FY18A to US$4,548mn in FY23E.
  • Shareholders' equity is expected to increase significantly, from US$463mn in FY18A to US$4,548mn in FY23E.

• Key Ratios:

  • SharkNinja's sales mix is expected to increase from 55.1% in FY19A to 74.6% in FY23E.
  • Gross margin is projected to increase from 37.3% in FY18A to 41.1% in FY23E.
  • Operating margin is expected to remain stable, with a slight decrease from 9.3% in FY18A to 9.1% in FY23E.

Valuation Table

Conclusion

Despite the logistics and cost challenges, JS Global Lifestyle maintains a BUY rating due to its low valuation. The stock is currently undervalued compared to peers, with a potential upside of 54.4% to the new target price of HK$22.35. The company's core business remains strong, and the potential for tariff relief is expected to improve gross profit margins in FY22E.