Performance resilience in 2024 is expected to continue to be superior to that of peers. The recovery in US real estate is expected to accelerate in 2025. Based on the 2023H2 revenue recovery, we raised our 2024/2025 net profit forecast from US$11.38/US$1.301 billion to US$11.45/1.369 billion, and added a net profit forecast of US$1.71 billion for 2026, corresponding to a year-on-year growth rate of 17.3%/19.6%/24.9%, respectively, corresponding to the diluted EPS of 0.6, 0.7, and 0.9 US dollars, respectively. 19.2, 16.0, 12.8 times PE The short-term growth of professional power tools is resilient. In the medium term, it is expected to benefit from the recovery of US real estate in 2025, and the long-term acceleration of OPE expansion will drive revenue growth, the high gross margin after-sales battery business will drive an increase in profit margins, and maintain a “buy” rating.
2023H2's revenue exceeded expectations due to its faster inventory removal process. Net profit was basically in line with the expected 2023H2 revenue of US$6.852 billion, exceeding our expectations by 10.15% year-on-year. It also surpassed the “middle single digit” growth guidelines announced voluntarily in October 2023. The performance was superior to that of its peers due to its rapid inventory removal process and larger professional power tools in its product structure. In terms of segmentation, professional power tool brand Milwaukee's revenue increased 13.1%, while other power tool brands, including Ryobi, increased 2.7% year over year, and floor care business increased 12.4% year over year. The gross margin of 2023H2 improved by 40 bps over 2023H1 to 39.67%, and remained stable compared to a 3 bps year-on-year increase compared to 2023H2. The net profit of 2023H2 was 501 million US dollars, an increase of 0.3% year on year. The profit side growth rate was lower than the revenue side mainly due to the expansion of various expense ratios. Among them, inventory removal led to an increase of 11.8% in sales expenses, a 14% increase in administrative expenses, and a 20.7% increase in R&D expenses.
Demand for professional power tools is more resilient. The recovery in US real estate in 2025 drives its growth rate. US construction spending is expected to remain high in 2024, the growth demand for professional power tools led by Chuangke Industries is more resilient, and management is still maintaining the 2024 double-digit revenue growth guide for the flagship professional power tool brand Milwaukee. We expect the company's overall revenue to grow by a medium to high single digit revenue in 2024.
Considering the restrictions and lagging effects on buyers in a high interest rate environment, the US real estate market is expected to stabilize in 2024 and return to double-digit growth in 2025, which is expected to drive Milwaukee and Ryobi to accelerate growth in 2025. OPE lithium electricity penetration rate has more room for improvement. The company is increasing its expansion efforts in the OPE direction, and is expected to launch more new products one after another and drive long-term growth.
Risk warning: The US recession exceeded expectations; product updates fell short of expectations; demand for power tools fell short of expectations.