Despite the spin-off of Shark Ninja (ex-APAC), JS global could still be attractive to the investors, because of: 1) potential turnaround of Joyoung, 2) rapid growth from Shark Ninja APAC and 3) rather distressed valuation (even after considering the small cap, holding and A/H discounts). We still give it a BUY rating with TP of HK$ 1.84, based on 8x FY24E P/E, 40% discount to industry average of 13.3x. The current valuation is at 5.4x (or 3.2x ex-cash) FY24E P/E.
Shark Ninja APAC is a growth driver, may account for 20%+ sales mix in the future. We do believe Shark Ninja APAC can have a bright future, because of: 1) enormous market size and 2) greater dedication from JS Global's management. The APAC (ex-China) small home appliances market has a large customer base (about 40% of world's population and 870mn household) and a retail sales of roughly US$ 7bn per year. Shark Ninja APAC's mid-term sales target is at US$ 400mn- 700mn (in 3 to 5 years, by FY25E to FY27E), where Japan, South Korea, Australia & New Zealand and India are the key regions and only South Korea will be conducted through wholesales (self- operated otherwise). Since the new APAC president arrives (he is from Dyson) in 3Q22, more innovative products and marketing were carried out in Japan and Australia, and we have seen a strong breakthrough in Jun 2023 (market share in the Cordless Vacuum segment has surged to 16% in Jul 2023, from about 13% in May 2023). Management is now expecting at least 30%/ 50% sales growth in Japan/ APAC for Shark Ninja in 2H23E (was at 23%/ 73% in 1H23). New categories such as ice cream maker and hair care product will also contribute certain growth as well.
Current market cap is rather distressed, even factoring in the small cap concerns, holding and A/H discounts. Based on our FY24E financial forecasts (US$ 1.78bn sales and US$ 106mn net profit att.). The current market cap is equal to just 5.5x FY24E P/E (or 3.2x if we exclude cash), which can be broken down to 5.1x/ 9x for Joyoung/ Shark Ninja APAC respectively, about 68%/ 34% discount to Joyoung's A-shares/ International peers' average of 15.9x/ 13.7x. Even if we plug in a 20% small cap discount for JS global, 20% holding discount and 20% A/H shares discount for Joyoung, the potential market cap can be as high as HK$ 6.9bn, equal to about 8.3x FY24E P/E, very close to our target price assumption of 8x. Another key reason we think JS global could be under-valued is the dividend. Its payout ratio was just at 50% in 1H23, while that for Joyoung was high at about 100% (3 years average), hence there are chances for it to climb in the future.
Maintain BUY and adjust the TP to HK$ 1.84. Our new TP is based on 8x
FY24E P/E, 40% discount to industry average of 13.3x. It is only trading at 5.4x FY24E P/E, about 59% discount to industry average.
