Matters:

The company announced its results for the year 22, achieving revenue of US$5.05 billion in '22, -2.2% year on year; achieving net profit of US$330 million, -21% year on year; on a semi-annual basis, 22H2 achieved revenue of US$2.81 billion, -13.4% year on year; and achieved net profit of US$170 million, -26.1% year on year.

Commentary:

Overall revenue was under pressure, and the decline in the Joyang division dragged down the scale. The company's overall revenue fell 2.2% year on year in '22, and the scale was under pressure against the backdrop of weak demand; among them, the Joyang division fell 7.7%, mainly due to weak domestic demand for small household appliances, which dragged down the overall revenue scale; the SN division was +0.03% compared to the same period last year. Against the backdrop of weak overseas demand, high inflation, and inventory removal, it still showed strong operating resilience. Specifically, Shark achieved revenue of 2.06 billion US dollars, +2.2% year on year; the US cleaning appliance market share increased from 32% in '21 to 34.6% in '22. Ninja achieved revenue of $1.67 billion, a year-on-year decline of 3.2%; the ice cream maker market share increased from 23.7% in '21 to 60.5% in '22. SN's category innovation and regional expansion strategy achieved remarkable results in '22. The market share of the new Shark Air Purifier Drive Company increased from 3% in '21 to 6.4% in '22; European market revenue was US$630 million, +2.5% year on year, and other emerging markets (Japan, etc.) achieved revenue of US$170 million, +1.2% year on year; overseas regional market expansion logic continued to be implemented. The domestic and overseas demand environment was weak in '22, and the company still showed superior operating performance than its peers. We have high expectations for the company's long-term growth after the subsequent recovery in demand.

22H2 gross margin improved marginally, and net interest rates were under pressure from rising 22-year expense rates. 22H2 achieved net profit of US$170 million, or -26.1% year on year; achieved gross profit margin of 36.2%, +1.3pct year on year; 22H2 gross margin improved marginal, mainly due to declining raw material prices and marginal decline in shipping costs. The sales, management, and financial expense ratios in '22 were -0.03, +1.7, and +0.4pct respectively. The increase in management expense rates was mainly due to the company's hiring of overseas regional market executives and the increase in employee salary costs. Under the overall influence, the company achieved a net interest rate of 6.6% in '22, -1.5pct compared to the previous year; under the current product iteration and new product innovation strategy, the company's product profitability was not affected by significant price reductions due to the removal of overseas inventories. Subsequent gross margin improvements are expected to continue. After the impact of the one-time increase in employee salary costs is eliminated, net interest rate improvements can be expected.

The spin-off of SN to the US stock market is conducive to increasing the overall value of SN. The company plans to split the SN segment into the US stock market and is expected to be independently listed within 23 years; after the spin-off is completed, JSG will retain the Joyang and SN Asia Pacific business, and SN will focus on Europe, America and other overseas markets; this spin-off business will help JSG and SN focus on their respective business areas, improve the efficiency of localized operations, and facilitate talent incentives and introduction; at the same time, business disclosure will be more detailed after the SN split into US stocks will help European and American investors to thoroughly understand SN's investment value and release and enhance the overall value of SN.

Investment advice: JS Global has shown strong collaborative potential, with remarkable results in regional and category diversification; consumer demand for small household appliances was marginally weak in '22, and an inflection point in overseas demand can be expected starting in 23Q2. We adjusted the company's net profit to the parent for 23-24 to US$45/540 million (original value of US$43/5.0 million), adding to the forecast of net profit of US$610,000 for 25 years; the EPS forecast for 23-25 is US$0.13/0.15/0.18, corresponding PE is 7.7/6.4/5.6 times. The company has sufficient long-term growth momentum. Referring to the DCF valuation, the target price was raised to HK$11, corresponding to 10.8 times PE in 23 years, maintaining the “recommended” rating.

Risk warning: Fluctuations in shipping prices have exceeded expectations, the spread of the epidemic has exceeded expectations, and the promotion of new products has fallen short of expectations.