Core views:
Performance continued the growth trend in the first quarter, and profitability improved. Superstar Technology revealed its 2024 semi-annual performance forecast. It is expected that 24H1 will achieve net profit of 1.09-1.18 billion yuan, +25%-35% year-on-year; based on median calculation, 24Q2 net profit to mother +26.4% year-on-year. The company's 24Q2 revenue growth rate continued the growth trend in the first quarter. Downstream customers ended the warehousing phase, orders resumed, and production capacity was invested in the Southeast Asia base, and profitability increased significantly.
The US inventory removal has basically come to an end, and downstream inventory replenishment is driving the recovery of the tool market. According to Wind, the US core CPI was +3.4% year-on-year in May '24, and inflationary pressure eased marginally. On the inventory side, the inventory of US retailers was +4.8% year-on-year in April '24, with a slight increase; taking the example of the US manufacturer, Home Depot, its 24Q1 inventory ratio was -12%. Inventory had already experienced negative growth for four consecutive quarters and the decline had narrowed. The initiative of supermarkets to remove inventory basically ended, and inventory replenishment led to a recovery in demand in the tool market.
Categories and downstream expansion continued, and the share of private brands increased. On the product side, the company moved from hand tools to power tools and laser instruments, and its revenue share increased from 18% in '21 to 26% in '23, and ranked in the global TOP2 in '23; as a client, the company continued to focus on household consumption, taking into account the layout of industrial production. At the same time, the company vigorously developed its own brand business. The share of private brands rose from less than 10% in '16 to close to 50% in '23, raising the profit ceiling.
The Southeast Asia base was put into operation, and the overseas production capacity layout continued. By the end of '23, the company had 3 production sites in Southeast Asia, 5 in Europe, and 3 in the US. The Southeast Asian market has a good foreign trade environment and a high return on investment. The company's factories in Thailand, Vietnam and Cambodia are being built at an accelerated pace. 24H1 With the commissioning of the company's Southeast Asian manufacturing base, the company's profitability has increased significantly.
Profit forecasting and investment advice. It is predicted that in 24-26, the company will achieve net profit of 2.3/2.81/3.34 billion yuan and an EPS of 1.91/2.34/2.78 yuan/share. The downstream prosperity of the industry has increased, the company's main business is stable, and profitability continues to recover. Referring to comparable company valuations, the company was given 16 times PE in 24 years, corresponding to a reasonable value of 30.64 yuan/share, maintaining a “buy” rating.
Risk warning: Overseas demand falls short of expectations; exchange risk; risk of fluctuations in raw material prices.