【Company Research】JS Global Lifestyle (1691 HK) – Cross-selling with world-class tech and style
- JS Global is the 3rd/ 2nd largest in China/ US with 8.8%/ 8.1% small appliance market share. JS global has three major brands (Joyoung, Shark and Ninja) which focus on cleaning, food preparation and cooking appliances, and generated a sales of USD 2.7bn and net profit of USD 112mn in FY18.
- Emphasis on R&D to solve consumers’ pain points. JS Global is dedicated on R&D and innovation as solving consumer pain point is a proven growth driver. In FY18, it spent ~USD 119mn on R&D, ~4.4% of sales (peers’ avg. is 4.9%), and had a team of ~800, ~20% of total (peers’ avg. is 12%). We believe recent launches: revolutionary products - 1) Multifunctional steamer S5 (2019), 2) Ninja Foodi series (2018) and evolutionary products - 3) Premium soymilk maker K-series, 4) High-performance multifunctional blender Y88 (2019), 5) Robot vacuum Shark ION (2017) can boost growth in FY18-21E.
- Cross-selling in product, region, price point. Acquisition of SharkNinja in 2017, in our view, can unlock huge potential by leveraging existing products and sales network, like: 1) expanding Shark & Ninja into rest of the world (e.g. EU, Japan, Australia) and China, 2) selling Foodi series in EU, vacuum & robot cleaners in China, 3) penetrating into high-end segment in China with Shark.
- Ample room for efficiency boost and cost synergies. These can be derived from: 1) sharing of supply chain between Joyoung and SharkNinja and 2) sharing of R&D resources (patents, functions and expertise), etc.., driving SharkNinja’s segment EBIT margin to 8.8% in FY21E (vs 5.4% in FY18).
- Ways to tackle pressure from China-US trade disputes. In our view, SharkNinja’s GP margin will be suppressed in FY19E-20E due to US’ import tariff. However, it will be partly offset by positive factors like 1) CNY depreciation and counter measures such as 2) value reengineering by using cheaper components, 3) raising retail ASP and 4) diversifying from China (boosting overseas sales and supplies), etc.
- We forecast a 13%/ 29% sales/ adj. net profit CAGR in FY18-21E. Drivers are: more SharkNinja, more cleaning appliances and more contribution from EU and China. We forecast stable GP margin in FY19E-20E, then a jump in FY21E due to better product mix and brand mix, while net profit margin to improve more in FY20E-21E, thanks to lower A&P, D&A and finance costs.
- Initiate BUY with TP of HK$ 7.65. Our TP for JS Global is based on 16.0x FY20E adj. P/E, 14%/ 13% discounts to China/ Int’l small appliances peers’ average of 18.7x/ 18.4x, despite its: 1) global leadership in small appliance, 2) superior R&D capability and 3) strong turnaround ahead for SharkNinja driven by synergies and robust product pipeline. The TP also implied a 0.77x 3 years adj. PEG, comparing to China/ Int’l peers’ median of 2.0x/ 1.4x. The stock is trading at 10.8x FY20E adj. P/E or 0.52x PEG, which we think is attractive.
