JS Global Lifestyle Company Limited: where is Sacred

002242.SZ is one of the few bull stocks that have continued to rise in the A-share market in the past two years, and it is also a high-quality company in the eyes of many investors. However, many investors do not know that there is a parent company behind Jiuyang called JS Global Lifestyle Company Limited (01691.HK).

Why haven't you heard of JS Global Lifestyle Company Limited before? In fact, although it is the parent company of Jiuyang, it is the descendant of Jiuyang shares.

The history of Jiuyang shares can begin in 1994, when the company's founder Wang Xuning officially launched the research and development of a fully automatic soymilk machine. After successfully occupying the market of soymilk machines and small household appliances, Jiuyang shares were listed on the Shenzhen Stock Exchange in 2008. In 2017, the company decided to expand its overseas business and make a loan to acquire a stake in SharkNinja, one of the US small home appliance leaders. Eventually, JS Global Lifestyle Company Limited listed 59 per cent of Jiuyang and 100 per cent of Sharkninja on the Hong Kong stock exchange in December 2019.

As the holding parent company of Jiuyang and Sharkninja, JS (Jiuyang + SharkNinja = JS) Global Life is actually the chess player behind small household appliances in China and the United States.

1) Jiuyang shares:Jiuyang is the third largest and small household appliance enterprise in China, among which wall-breaking machines and food cooking machines rank first in market share. In the first half of 2020, Jiuyang distributed income of 624 million US dollars, accounting for about 41.2% of the parent company's total revenue, up about 9.1% from the same period last year.

2) Shark & Ninja:Shark focuses on cleaning household appliances, while Ninja focuses on kitchen appliances. The brand is the second largest household appliance company in the United States, with vacuum cleaners ranking first in the market share, floor sweeping robots, steam mops and multi-purpose cooking cookers ranking second in the market. Competitors are widely known as Dyson, iRobot and so on.

According to the company's first-half results, Sharkninja contributed US $890 million in revenue to JS Global Lifestyle Company Limited, accounting for 58.8% of the revenue, up 34.2% from the same period last year; the company's total revenue reached US $1.515 billion, or about 10.429 billion yuan.

Obviously Jiuyang is a subsidiary and JS Global Lifestyle Company Limited is the parent company. Why is there little difference between the market capitalization of JS Global and the value of Jiuyang? The conclusion is in front: as one of the leading small household appliances in the United States, Sharkninja must have its value, so JS Global Lifestyle Company Limited's value is undervalued.

Is there any investment opportunity for this company, which has the leading small household appliances in China and the United States?

Second, the reasons for the low market capitalization

1) different asset structures lead to differences in valuation

Looking back, Jiuyang bought Compass (SharkNinja) at a price of $1.608 billion in 2017, of which debt acquisition financing accounted for $742 million. According to the latest data, JS Global Lifestyle Company Limited owes $1.17 billion in outstanding bank loans, which is related to the acquisition in 2017.

As a subsidiary, Jiuyang is not burdened with liabilities arising from the acquisition of SharkNinja, so it is debt-free. JS Global, on the other hand, experienced a nightmare of ultra-high leverage and had to reduce leverage pressure through debt refinancing.

As shown above, the company used 50% of the publicly raised money to repay bank loans to reduce the company's current asset position. Now JS Global Lifestyle Company Limited's asset-liability ratio is 62.66%, although it is 23.77% lower than that of 86.43% before listing, but it is still higher than Jiuyang's debt ratio of about 47.55%. And the company's overall debt has not changed much, the main reason

Generally speaking, the higher the asset-liability ratio, the higher the leverage, and companies need to pay more attention to the expenditure and reserves of cash flow to prevent leverage from breaking. JS Global currently has annual interest payments of $78.84 million, or about 500 million yuan. After taking into account the potential risk of default, the market capitalization of the company will become correspondingly conservative.

In the future, with the high-quality cash flow of subsidiaries and the bond refinancing plan planned by the company's management, JS Global Lifestyle Company Limited's debt pressure can be alleviated gradually.

2) holding the parent company, the enterprise value is discounted

JS Global Lifestyle Company Limited is a more complex parent company: JS Global currently indirectly controls a 59 per cent stake in Jiuyang and does not own it; it directly and indirectly controls a stake in Sharkninja100% and owns Sharkninija.

Therefore, in Jiuyang, as JS Global does not fully own Jiuyang, this kind of controlling parent company is not welcomed by capital. In the secondary market, the share price of the holding parent company is basically discounted, and this type of relationship includes Lenovo Group Limited and Lenovo Holdings, Weibo Corp and Sina and so on.

Based on Jiuyang's equity, the company needs to distribute 41% of the after-tax profits from Jiuyang to its minority shareholders. As a result, JS Global Lifestyle Company Limited's net profit is not as high as that of Jiuyang, and the distribution of the income of these few companies has halved the value of JS Global.

All in all, there are two reasons why JS Global Lifestyle Company Limited's market capitalization is lower than expected:

1) JS Global Lifestyle Company Limited has a high debt ratio and high interest payments, resulting in high leverage and unable to keep up with the valuation of the company. But companies can refinance through long-term bonds and get high-quality cash flow from subsidiaries.

2) JS Global Lifestyle Company Limited controls Jiuyang by 59%, so that the profits of the subsidiary need to be distributed to the minority shareholders of Jiuyang, and the market cannot give a higher market capitalization.

As a company familiar to domestic investors, Jiuyang naturally becomes the contrast of JS Global Lifestyle Company Limited. But in fact,SharkNinja is the key point that can support JS Global Lifestyle Company Limited's appreciation space in the future.

3. Truly driven motors

Returning to Yingxi on Aug. 10, JS Global Lifestyle Company Limited announced that profits for the first half of 2020 would soar by 356.6%, totaling more than $100m. And this amount has subtracted the dividend to Jiuyang shareholders. In addition to the amortization of interest expenses, it also shows that the growth momentum of JS Global Lifestyle Company Limited's wholly-owned subsidiary SharkNinja is very gratifying.

As a 100% holding subsidiary, SharkNinja is the asset that can really lead JS Global Lifestyle Company Limited's share price to rise. According to the current script, SharkNinja's performance in 2020 opened up room for the parent company's share price to rise.

JS Global Lifestyle Company Limited's upward space will break through from the following two trends.

1) overseas markets: online + new products contribute to the outbreak of sales

Online channel has always been the main channel of small household appliances. Due to the epidemic, European and American countries stepped up the blockade in the first half of 2020, resulting in a substantial increase in the time spent at home. With the increase of time at home, consumers begin to pay attention to household cleaning products and kitchen supplies. According to Emarketer statistics, the development of online e-commerce has accelerated the process of 3-4 years in the past 3-4 months.

The company actively develops online sales strategy. In addition to Sharkninja's official website, the company has in-depth cooperation with Amazon, Walmart Inc, Target Corp and Costco cable channels, and can also build its own brand credibility by taking advantage of the brand awareness of top retailers. Target Corp, Walmart Inc and Amazon are all the most profitable online retailers in the epidemic, ensuring the online exposure of SharkNinja. The expansion of online channels is likely to be the main reason for the revenue explosion in the first half of 2020.

It must be mentioned that Sharkninja has always been a well-known national brand in the United States. Before it was acquired by JS Global Lifestyle Company Limited, Sharkninja invested a lot of advertising money to pull Shark vacuum cleaners from 1% of the market share to 36.4% today, making it the number one vacuum cleaner company in the United States. Sharkninja's advertising volume also affected the founders of sharkninja. Sharkninja's CEOMark Rosenzweig was put on Douban by American netizens and sorted out the TV commercials he once appeared in, jokingly calling him a movie star in the boss world.

In addition to its own solid vacuum cleaner tray, SharkNinja has also developed many popular household appliances.

In 2019, Shark launched an intelligent floor sweeping robot, which can charge automatically, plan the sweeping route, and so on. The US market reacted strongly and the annual growth rate is expected to be as high as 19.8%. While ninja launched the FOODi series of products, compared with 2018, the sales of ninja cooking appliances increased by US $240 million, reaching a growth rate of 219.5%.

The growth rate of the entire overseas market is considerable, as of the first half of 2020.Revenue in North America increased by 31.4% year-on-yearThe main credit is the popularity of cooking appliances such as ninja.The growth rate of the European market reached 56.5%.Mainly due to the low penetration of sharkninja in the European market In the next stage, the company is expected to enter markets such as Germany and France, gradually increasing its visibility and penetration in Europe.

All in all, Sharkninja not only has a huge basic vacuum cleaner disk, but also maintains its competitive advantage in overseas markets through the expansion of online channels and the rapid growth of new products. And these advantages will eventually return to the value of JS Global Lifestyle Company Limited.

2) mainland market: an incremental market with low permeability

If overseas is the main task of Sharkninja, then the mainland is an additional task of SharkNinja. Judging from the current achievements, Sharkninja not only does a good job in the main line, but also has a broad potential for additional tasks.

From 2015 to 2018, the domestic vacuum cleaner industry ushered in a period of rapid development, with an annual compound growth rate of 36%.

According to data released by Ori International, the penetration rate of China's vacuum cleaner market is only 7.8%, which is quite different from that of Japan, Hong Kong, South Korea, Singapore and other Asian regions that are more than 70%. With the improvement of per capita GDP and consumption level in China, the market share of vacuum cleaners in China will continue to increase.

In addition to the huge market, the sales growth of vacuum cleaners is also extremely considerable. Vacuum cleaners are one of the fastest growing household appliances at this year's 618 Shopping Festival. In the week from June 15 to 21, offline sales of vacuum cleaners increased by 132% year-on-year, sales increased by 98%, online sales increased by 80.11%, and sales increased by 67.65%, according to the Ovirodisc. Shark (a vacuum cleaner branch of Sharkninja) became the top1 in the steam mop category on Tmall's platform, and sales grew by 409% in 2019.

Shark's clean household appliances strike a balance between price and quality, and successfully cut into the mid-market of Dyson, Stone, Midea and Supor. It is worth looking forward to how it will combine its advantages in the mainland market.

Conclusion:

To focus on the value of JS Global Lifestyle Company Limited, you should not only look at Jiuyang, but also a wholly-owned subsidiary: Sharkninja, which accounts for nearly 60 per cent of the company's revenue.The steady development of Sharkninja in the United States and the rapid development in Europe are the flashpoints that investors really need to see.

Besides,The synergistic effect of Jiuyang and Sharkninja is also worthy of attention. After the merger of Jiuyang and sharkninja, they can share their respective supply chains, production lines and even R & D patents.Greatly reduce the company's operating costs, further improve the net profit, and optimize the company's cash flow under high debt.

to make a long story short,JS Global Lifestyle Company Limited faces a dilemma: high debt.Fortunately, in the context of global interest rate cuts, companies can improve their asset structure by refinancing bonds at lower interest rates. At the same time, high-quality cash flow inflows from domestic and foreign subsidiaries can help companies maintain highly leveraged interest rates.

After the latest earnings release, the company's price-to-earnings ratio TTM has returned to 43 times from 94 times before the announcement. The company is currently in a period of adjustment, so the phased distortion of PE is not suitable for the valuation of JS Global Lifestyle Company Limited.The home appliance industry belongs to the industry with stable sales income and profit margin, so the market-to-sales ratio can also be used. By comparison, JS Global is the lowest market-to-sales ratio in the domestic home appliance industry, which precisely proves the current investment value of the company's stock.

If JS global management succeeds in reducing its debt burden under operation, with the joint efforts of Sharkninja and Jiuyang, there is still a lot of room for JS Global Lifestyle Company Limited's market capitalization. Whether Jacks can create a situation of 1: 1 > 2 is worthy of attention in the future.