Business Summary:

The principal activities of the group are the manufacturing and trading of electrical and electronic products. Products by division include Power Tools, Accessories, Hand Tools, Outdoor Power Equipment, Floor Care, Appliances for Do-It-Yourselfer (DIY), professional and industrial users in the home improvement, repair, maintenance, construction, and infrastructure industries. The group is accelerating the transformation of these industries through environmentally friendly cordless technology.

The group has worldwide diversified divisions in Asia, Australasia, North /Latin America, Europe, Middle East, Africa & Indian Subcontinent. In particular, Asia divisions is located in Kwai Chung (Hong Kong), Zhuhai and Dongguan (China). By 2019, the group has worldwide sales of US$7.7 billion and over 30,000 employees. Product by brand (total: 12) includes MILWAUKEE, AEG, RYOBI, HOMELITE, EMPIRE, STILETTO, HART, HOOVER, ORECK, VAX and DIRT DEVIL.

As of 2019, region sales accounted from North America, Europe and rest of world contributed 77.1%, 15.1% and 7.8% respectively. In terms of revenue growth in 2019, North America, Europe and the rest of the world delivered 10.0%, 8.4% and 3.1% respectively.

Financial Summary:

Announced on 4 Mar, 2020 for 2019 full year results, sales revenue increased 9.2% to US 7,667 million which is the tenth consecutive year of record. (As of first half of 2009, this figure was just above US 1,500 million.) Net profit rose 11.3% yearly to US $615 million. Earnings per share equaled US 33.67 cents. A final dividend of HK58 cents was declared; an increase of 16.0%. Gross profit margin improved for the eleventh consecutive year from 37.2% to 37.7%. (This figure was 30.8% as of 2008).

As of 2019, non-current assets, current assets, current liabilities, net current assets, long term liabilities, and equity increased by 25.9%, 18.9%, 23.0%, 12.3%, 60.8% and 11.0% respectively; as compared with the previous year. The shareholder's funds reached a record high of over US 3B.

Power Equipment business contributed 88.6% of the total group sales while the Floor Care and Appliance business accounted for 11.4%. Sales for power equipment grew 13.0% to US 6,792 million while operating profit grew 10.8% tp $663 million. Sales for floor care & appliance decreased 13.5% to US 875 million whereas operating profit grew 12.8% to US $10 million.

Investment Firm Analysis

Released on 18 Jun, 2020, UBS hikes target price to $91, rated buy. The price has rallied 75% from the March trough to pre-epidemic levels, but has yet to fullly price in a rapid business recovery in short term and growth prospects in long term, particularly cordless market share gains and new business expansion. Released on 5 May, 2020, JPMorgan mentioned in its report that Techtronic's latest management guidance had suggested significant outperformance again peers, along with the still-strong balance sheet and high discipline in the fixed and working capital expenditure.

Risk:

a) fluctuating local material cost and transportation cost from China to USA and Europe.

b) If Euro currency decreases too much, US sales will expose keen competition with other manufacturers in Europe.

c) Increasing European Union energy label requirements may affect the sales of Floor Care and Appliance Business.

d) If trade war deteriorates between China and US; that may not be offsetted by the benefits under RMB depreciation for the export company.

e) downturn of US consumer index

Technical Analysis:

It is suggested to accumulate the stock when the price is close to the lower level of Bollinger bands of around $72. The medium target price is $82. Cut loss level is set at $67.

References:

Company Interim Report 2019

www.aastocks..com.hk

www.etnet.com.hk

www.afe-solutions.com

 I, Gary Tam, am a licensed person under the Securities and Futures Commission. Until the date this commentary was published, neither I and/or my affiliates are the beneficiary of the securities mentioned herein or are entitled to any financial interests in relation thereto.