SN Asia Pacific's revenue for the first half of 2023 increased 73.0% year over year

JS Global Life announced the results of the first semi-annual report after the spin-off of SharkNinja (SN) Group. After the spin-off of SN's European and American business, the listed company retained only SN's Asia Pacific business and held 67% of Joyang's shares. In the first half of the year, the company achieved total revenue of 570 million dollars (US dollars, same below), a year-on-year decrease of 18.5%. Due to domestic consumption recovery falling short of expectations and weak demand for small household appliances, Jiuyang's revenue for the first half of the year was 490 million dollars (down 23.2% year on year); while SN's Asia Pacific business achieved revenue of 49 million million (73.0% year-on-year increase) due to: 1) a small base; 2) driven by high growth in the Japanese market; 3) driven by new developments in the Australian and New Zealand markets. In terms of gross profit, the company's comprehensive gross profit margin for the first half of the year was 37.2%, an increase of 1.5 percentage points, under the combined effects of the increase in gross margin of Joyang's Asia Pacific business and a slight decline in gross margin of SN's Asia Pacific business. Sales and administrative expenses for the first half of the year were 170 million dollars, a year-on-year decrease of 8.6%. The company's net profit for half a year after the spin-off was 34.6 million, down 27.7% from the previous year. The company paid an interim dividend of HK$0.039 per share, with a dividend rate of 50%.

SN Asia Pacific is expected to grow by more than 50% in the second half of the year

In the first half of the year, the company's revenue in Japan was 37.4 million, an increase of 29.9% over the previous year, accounting for 77% of SN Asia Pacific's revenue. The high growth was mainly due to the success of cordless vacuum cleaners tailored to the Japanese market and became market leaders after launch. Since the lifestyle and eating habits of Japanese consumers are similar to those of Chinese consumers, the company will continue to launch popular products in Japan with Joyang's supply chain and manufacturing capabilities. Management expects Japan's revenue growth rate to exceed 30% year-on-year in the second half of the year. In the first half of the year, the company completed strategic mergers and acquisitions of dealer groups and sold products in Australia, New Zealand, Singapore and Malaysia under a direct management model. These new markets will continue to gain strength in the second half of the year. The company expects SN Asia Pacific's revenue to increase by more than 50% year-on-year in the second half of the year.

Forecast FY23E net profit of $74 million; target price HK$1.70

SN Asia Pacific's main growth drivers come from iterating existing products, launching new categories, and entering new markets. It is estimated that FY23E will generate 1.22 billion dollars in revenue, while Joyang and SN Asia Pacific will each account for 1.05 billion and 100 million dollars in revenue. The gross profit margin of FY23E was 37.7%, while Joyang and SN Asia Pacific were 33.0% and 45.3%, respectively. Since opening up new markets will increase advertising expenses, it is predicted that FY23E/FY24E sales expenses will account for 19.3%/19.7% of revenue; FY23E's net profit is 74 million. The new target price is HK$1.70, corresponding to a price-earnings ratio of 10 times FY23E. Assuming a full-year payout rate of 50%, the FY23E dividend rate is 7.5%. There is 52% room for the stock price to rise, giving it a “buy” rating.

Investment risks: 1) demand for small appliances in China and the Asia-Pacific region is slowing; 2) exchange rate risk; 3) related transaction risk.