Event: Recently, JS Global Life announced financial results for 2022, with annual revenue of 5.041 billion US dollars, down 2.1% from the previous year; gross margin was 37.3%, down 0.1 pp from the previous year; and the net profit of the mother was 332 million US dollars, down 21% from the previous year. Based on comprehensive considerations, we forecast EPS of $0.12/0.13/0.15 for 2023-2025, giving the company 12 times PE in 2023, with a target price of HK$11.3 to maintain the “buy” rating.

Report summary

Under pressure from the macro environment, overseas markets continued to gain strength. The company's revenue in 2022 reached 5.041 billion US dollars, a year-on-year decline of 2.1%. Among them, the SN segment recorded revenue of 3.715 billion US dollars, which is basically the same as last year, mainly due to the weakening of the British pound, euro and yen. Based on fixed exchange rates, revenue increased 2.4% year-on-year. The Jiuyang division recorded revenue of 1,325 million US dollars, a year-on-year decline of 7.7%, mainly due to the downturn in the domestic consumer market. In particular, 22Q4 was hit hard by the epidemic. By region, North America is still the main market, recording revenue of 2,928 billion US dollars in '22, down 1.2% from the previous year. Although the growth performance of newly launched air purification and personal care products, ice cream makers, outdoor grills, and 2-in-1 vacuum cleaners was good, consumer demand for existing categories was weak, and retailers were under strong pressure to remove inventory, causing overall revenue to decline slightly. The Chinese market recorded revenue of 1,307 million US dollars, a year-on-year decline of 6.5%. Mainly affected by macroeconomics, overall demand in the small home appliance industry slowed down. Revenue in the European market increased 2.5% year over year to US$632 million, mainly due to increased market share in the UK and business development in Germany and other countries, but some of the positive effects were offset by the depreciation of the pound and the euro against the US dollar. Based on a fixed exchange rate, revenue increased 14.6% year over year. Other markets recorded revenue of 174 million yuan, an increase of 1.2% over the previous year, mainly due to business growth in various countries such as Japan, Australia, New Zealand and Israel, but the depreciation of the yen against the US dollar offset some of the increase. Based on a fixed exchange rate, revenue increased 8.8%.

Gross margin declined. In terms of SN spin-off, which helped increase value gross margin, the company's 22-year gross margin was 37.3%, a slight decrease of 0.1 pp over the previous year. Among them, the gross margin of the SN segment fell 0.8pp to 39.2%, mainly due to the year-on-year increase in container and commodity costs and the increase in promotional activities due to retailers' demand for inventory removal. The impact was partly offset by tariff exemptions for vacuum cleaners and air fryers; the gross margin of the Joyang division increased 1.6 pp to 32.1% year on year, mainly due to the increase in the share of high-margin products. As related costs gradually fall, gross margin is expected to continue to improve. Furthermore, the company plans to split the SN division and go public on the US stock market, which is expected to be completed within this year. After the spin-off was completed, JSG retained the Asia Pacific business of Joyang and SN, while SN focused on Europe, America and other overseas markets. This move will help different players focus on different markets, and SN will be spun off into the US stock market. European and American investors are more familiar and familiar with Shark and Ninja, which will help further unleash the overall value of SN.

Investment advice: With the gradual improvement of gross margin and the continuous expansion of overseas markets, the company still has plenty of room for growth in the future. Based on comprehensive considerations, we forecast EPS of $0.12/0.13/0.15 for 2023-2025, giving the company 12 times PE in 2023, with a target price of HK$11.3 to maintain the “buy” rating.

Risk warning: The macroeconomic downturn affects sales; competition in the industry intensifies; overseas market expansion falls short of expectations.