Introduction to this report:
Q2 performance exceeded expectations; the supermarket's initiative to remove inventory was basically over, and it is expected that US interest rate cuts will drive a recovery in terminal demand; active acquisition+channel expansion strategy main line, and there is broad room for medium- to long-term growth.
Key points of investment:
Investment advice: As a leader in hand tools, the company is actively expanding its categories and market share, and is expected to benefit from the recovery in existing home sales driven by US interest rate cuts. Considering the end of supermarket warehousing and marginal recovery in industry demand, EPS in 2024-2025 was raised to 1.73/2.09 yuan (originally 1.72/2.07 yuan), and the 2026 EPS was added to 2.43 yuan.
The target price was maintained at $31.59, and the increase in holdings rating was maintained.
Q2 Performance exceeded expectations. The company announced that 24H1 achieved net profit of 1.091-1.178 billion yuan, an increase of 25%-35% over the previous year; it achieved a deduction of 1.133-1.224 billion yuan, an increase of 25%-35% over the previous year. Single 24Q2 achieved net profit of 0.678-0.765 billion yuan, a year-on-year increase of 18.9%-34.2%. At 24H1, the company launched a large number of new products such as power tools and special cabinets to achieve impressive performance growth through category expansion+share increase. Furthermore, with the increase in the company's revenue scale and the commissioning of the Southeast Asian manufacturing base, the company's profitability has also increased dramatically.
Supermarkets are basically ending their initiative to leave the warehouse, and it is expected that US interest rate cuts will drive a recovery in terminal demand.
At 24H1, supermarkets basically stopped taking the initiative to remove inventory, and the company's overall order recovery matched market demand. As inflation in Europe and the US abates, subsequent US interest rate cuts are getting closer. If the US cuts interest rates, it is expected to drive down interest rates on mortgages and boost sales of existing homes. Demand for hand tools is highly correlated with existing home sales in the US. If the US cuts interest rates, demand in the hand tool industry is expected to be fully released.
Actively acquisition+channel expansion strategy main line, broad space for medium- to long-term growth. 1) Omni-channel development of hand tools to continue to gain share. 2) Power tools are an important growth point for the company in the future. At present, a series of developments have been made, focusing on competition in the “handheld power tools” market segment. 3) Cross-border e-commerce is expected to maintain an annual growth rate of more than 30% in the future. Currently, the cross-border e-commerce business accounts for about 20% of revenue. At the same time, the weighted gross margin of the e-commerce channel of the company's products is higher than the company's current gross profit margin.
Risk warning: The Fed's interest rate cut was delayed, and the recovery in industry demand fell short of expectations