Core views:
Lithium battery OPE faucet, power tools+OPE two-wheel drive. The company has five private brands, power tools and OPE two-wheel drive. There are multiple paths of mergers and acquisitions and independent cultivation to establish a diversified brand portfolio. (1) Electric tools: Covered by many brands such as FLEX and SKIL. Although their share of revenue has declined in recent years, they still maintain strong competitiveness. (2) OPE: The high-end OPE brand EGO was independently created by the company. According to the company's prospectus, EGO ranked third among the global electric OPE brands in 2020, accounting for 9.8% of the market share. EGO has developed rapidly in recent years, accounting for more than 40% of the company's revenue, becoming the most important source of growth for the company.
The technical reserves are sufficient, and the self-development of the three-power system ensures competitiveness. The company independently develops three-electric systems, and the technical advantages of power tools and OPE products are obvious. According to the prospectus, the company's battery end independently built a battery platform, and the modular design has strong thermal control capabilities; the motor end breaks through the two key technologies of brushless permanent magnet synchronization and direct drive of the outer rotor; and the electronic control end develops three major electronic control systems: sensorless control, vector control, and brushless AC technology. The company has developed strong competitiveness from R&D to manufacturing.
Deeply connect with core customers and develop in parallel through multiple channels. (1) Retailer channels: Independent brand offline retail channels are the core. The company is deeply tied to Lowe's. According to the company prospectus, revenue from Lowe's accounted for close to 40% in 2020; (2) Dealer channels developed well outside of the North American market. By maintaining long-term cooperation with major distributors, the company has continuously increased its penetration into regional markets and accumulated valuable experience and local resources. (3) New channels: including online e-commerce channels, etc. According to the announcement, cooperation was also reached with strategic customer John Deere in 2023.
Profit forecasts and investment advice. The company is expected to return net profit of US$0.44/1.19/159 million from 23 to 25 years. As a leader in the OPE industry, the company is expected to benefit from a recovery in demand after the opening of the North American interest rate cut channel in the future. Considering its leading position, referring to comparable companies, the company was given 15 times PE for 24 years, corresponding to a reasonable value of HK$27.19 per share, covering the first time, and giving the company a “buy” rating.
Risk warning. The risk that inventory removal in the North American market falls short of expectations; the risk that the prosperity of the European market falls short of expectations; the risk posed by exchange rate fluctuations, etc.