The results for the first half of 2024 slightly exceeded our expectations

The company announced results for the first half of 2024: revenue of 7.312 billion US dollars, up 6.3% year on year; net profit to mother of 0.55 billion US dollars, up 15.7% year on year, corresponding to profit of 0.30 US dollars per share. The performance slightly exceeded our expectations, mainly due to the increase in the company's gross margin in 2024 and revenue growth slightly exceeding expectations.

The growth rate of power tools continued to grow in the first half of the year, and the diversification and expansion of the region went smoothly. By product, power tool revenue in the first half of 2024 was 6.884 billion US dollars, up 6.7% year on year, which was the main driving force for revenue growth. Among them, the main brand, Milwaukee, achieved an 11.2% increase in revenue based on local currency revenue. In particular, Ryobi achieved mid-single digit growth, mainly driven by strong performance of outdoor products; floor care business revenue of 0.428 billion US dollars, down 0.4% year on year. By region, the company's revenue in North America was 5.461 billion US dollars, up 5.7% year on year; European revenue was 1.251 billion US dollars, up 8.6% year on year; revenue from other regions was 0.599 billion US dollars, up 6.9% year on year.

The company's profitability increased year-on-year for 16 consecutive years. The company's comprehensive gross profit margin for the first half of 2024 was 39.9%, up 0.7 ppt year over year, mainly due to the growth of high-value products in Milwaukee and the launch of new products in the aftermarket battery business. The company's net interest rate for the first half of 2024 was 7.5%, up 0.6ppt year on year, mainly due to the decline in the company's financial expenses and management expense ratio control. The R&D expense ratio increased 0.5ppt to 4.1% year on year in the first half of 2024, and the sales/management expenses ratio decreased 0.2/0.1ppt to 17.0%/10.4%, respectively. The inventory turnover ratio was 1.08, up 0.22 year on year. According to the company's public results meeting, the company's finished product inventory returned to pre-epidemic levels. The company's operating cash flow for the first half of 2024 was USD 0.775 billion, and the first half of 2023 was USD 0.694 billion.

Development trends

Inventory removal was completed in early 2024, and the industry's terminal demand is at the bottom. It is expected that terminal demand will improve after interest rate cuts. At the beginning of 2024, power tools returned to a relatively reasonable position in terminal channels and company inventory. According to the US Bureau of Economic Analysis, the actual annual consumption of US tools, hardware and supplies in June 2024 was 40.9 billion US dollars, +2.1% year over year. After 2 consecutive years of decline in demand for hardware tools, demand has fluctuated somewhat year-on-year since demand became positive in February, and overall terminal demand is still weaker than during the pandemic. Since 2/3 of the downstream exposure to hardware tools is related to real estate, it is recommended to continue to pay attention to interest rate cuts driving demand for real estate and transmission of demand for hardware tool terminals.

Profit forecasting and valuation

We increased our 2024/2025 EPS by 2.8% and 1.9%, respectively, to $0.62/0.70. The company's current stock price corresponds to 20.1/17.9 times P/E in 2024/2025. We maintain a target price of HK$115.49, corresponding to 24.0/21.4 times P/E in 24/25, with 19.3% upward room, and maintain an outperforming industry rating.

risks

Expectations of US interest rate cuts have been delayed; promotion of new products falls short of expectations.