Maintain BUY and lifted TP to HK$ 14.10, based on 20x FY21E P/E (raised from 19x FY21E P/E as SharkNinja has just entered a new but successful product cycle). We are confident that growth in 2H20E to remain fast, thanks to: 1) already strong pick up since 4Q19, 2) new demand induced by newly added customers during pandemic, 2) more innovative products to be launched. The stock is trading at 16x FY21E P/E, highly attractive (vs China/ Int’l peers’ avg. of 30x/ 24x) in our view. JS Global remains our top pick in the home appliance space.
- Explosive sales/ net profit growth in 1H20. JS Global net profit surged by 387% YoY to USD 107mn in 1H20, 46% above BBG est. and slightly better than the “at least USD 100mn” in profit warning, backed by a 23% YoY growth in sales, 16% above BBG est.
- An overwhelming performance from SharkNinja. SharkNinja sales surged by 34% YoY in 1H20, accelerated from 17% in FY19, thanks to: 1) excellent reception of new products (e.g. Shark VACMOP cordless vacuum mop, Shark Ion robot vacuum, Ninja foodie grill and oven), 2) rapid penetration into Europe and Japan and 3) raising e-commerce and resilient offline demand at many retailer stores. More impressively, its GP/ EBIT margin jumped by 11ppt/ 15ppt to 51%/ 16% in 1H20, due to 1) more higher margin new products sales, 2) reduced retail discounts, 3) lower production costs as its supply chain further consolidated with Joyoung’s and 4) a sizable tariffs refund. We forecast SN sales growth to be 30% in 2H20E.
- Significant rebound for Joyoung in 2Q20. Joyoung’s sales growth rebounded to 20% in 2Q20, vs 5% decline in 1Q20, driven by: 1) quick ramp up of e-commerce and more live-streaming promotions, 2) popularity gained among the younger customers after launches of more stylish and IP crossovers products. We foresee a 12% JY sales growth in 2H20E.
- Margin expansion to continue in 2H20E (excluding tariffs). We are confident GP margin to stay strong at ~39%, supported by more: 1) innovative and high-end product launches and 2) cost saving synergies (~USD 37mn).
- Maintain BUY and raised TP to HK$ 14.10. We revised up FY20E/ 21E/ 22E EPS estimates by 23%/ 25%/ 27%, to factor in better SharkNinja sales and GP margin. We maintain BUY but lifted TP to HK$ 14.10, as we use 20x FY21E P/E (raised from 19x). Valuation is still attractive at 16x FY21E P/E, comparing to its China/ Int’l peers’ average of 30x/ 24x FY21E P/E.
