27 Oct 2020 CMB International Securities | Equity Research JS Global Lifestyle (1691 HK) BUY (Maintain) A r obust growth momentum but a mild margin drag Target Price HK$19.57 (Previous TP HK$14.10) Maintain BUY and lifted TP to HK$ 19.57, based on 28x FY21E P/E (vs. prev. Up/Downside +16.5% 20x FY21E P/E), as we argue SharkNinja deserves a re-rating thanks to the more Current Price HK$16.80 sustainable growth from its new and successful product cycle. We are also confident on Joyoung‘s resilient growth in 4Q20E and FY21E. The stock is trading China Home Appliance Sector at 24x FY21E P/E, still attractive (vs China/ Int’l peers’ avg. of 30x/ 23x) in our view. JS Global remains our top pick in the home appliance space. Walter Woo (852) 3761 8776 Joyoung’s 3Q20 sales/ NP att. grew by 22%/ 7% YoY, 3% higher/ 12% [email protected] lower than CMBI est. Joyoung’s 3Q20 sales growth was impressive, which grew 22% YoY to RMB 2.5bn, 3% higher than our estimates. It was, in our Stock Data view, due to strong e-commerce demand even after offline stores re-opened. Mkt Cap (HK$ mn) 58,617 Avg 3 mths t/o (HK$ mn) 73.29 However, Joyoung’s 3Q20 NP att. only grew by 7% YoY to RMB 226mn, 12% 52w High/Low (HK$) 18.00/3.60 below our estimates. We attributed weaker GP margin (at 28.4% vs 32.3% Total Issued Shares (mn) 3,489.1 in 3Q19) to rising raw material costs, higher online mix and retail discounts. Source: Bloomberg However, we are still optimistic on 4Q20E. Even though Joyoung’s NP att. Shareholding Structure only grew by 4% in 9M20E, we are still convinced on a reasonable rebound Mr. Wang Xuning (Chairman) 56.52% & concert party in 4Q20E as the management reiterated its FY20 guidance of at least 9% CDH Fund 9.42% YoY growth, a minimal rate to unlock their stock incentives. Moreover, Mr. Mark Rosenzweig 7.87% according to All Cloud View, small appliances industry sales growth RSU Holding entity 4.88% Mr. Mark Adam Barrocas 2.09% (including ovens, blenders, cooker, vacuum cleaner, etc.) had no signs of Free Float 19.22% deceleration in Sep 2020 (vs Jul-Aug) for both online and offline. Hence, we Source: HKEx maintain rapid sales/ NP att. growth of 25%/17% YoY for Joyoung in 4Q20E. Share Performance SharkNinja’s growth in 2H20E should still be intact. We are still confident Absolute Relative on SharkNinja to deliver an upbeat growth in 2H20E, as its increasingly 1-mth 15.9% 8.0% 3-mth 128.3% 126.3% popular new products are likely to gain more market shares. Also, 1) the robust 6-mth 119.3% 109.8% China home appliances export growth (36%/ 39%/ 43% YoY in Jul/ Aug/ Sep 12-mth n/a n/a 2020), according to China Customs, and 2) recent upward revisions of Source: Bloomberg iRobot’s 2020 sales growth guidance (from 0%-LSD to 12%-13%) should be 12-mth Price Performance positive signs of rising demand for small home appliances in US and Europe. (HK$) Stock HSI 18.0 Maintain BUY and raised TP to HK$ 19.57. We fine-tuned FY20E/ 21E/ 15.5 22E EPS estimates by -4.1%/ -0.9%/ +0.3%, to factor in better Joyoung 13.0 10.5 sales growth but slightly lower GP margin and dilutions from recent shares 8.0 placement. We maintain BUY and lifted TP to HK$ 19.57 as we use 28x 5.5 FY21E P/E (raised from 20x). Valuation is still attractive at 24x FY21E P/E, 3.0 comparing to its China/ Int’l peers’ average of 30x/ 23x FY21E P/E. Earnings Summary Source: Bloomberg (YE 31 Dec) FY18A FY19A FY20E FY21E FY22E Revenue (USD mn) 2,682 3,016 3,759 4,334 4,840 Auditor: Ernst & Young YoY growth (%) 71.5 12.5 24.6 15.3 11.7 Related Reports Adj. NP att. (USD mn) 60 145 283 318 371 1. JS Global (1691 HK, BUY) - Top Adj. EPS (USD) 0.018 0.042 0.079 0.089 0.104 notch products to drive promising YoY growth (%) 12.277 136.6 89.9 12.6 16.6 outlook for 2H20 - 28 Aug 2020 Consensus EPS (USD) n/a n/a 0.075 0.091 0.118 2. JS Global (1691 HK, BUY) - Industry Adj. P/E (x) 121.6 51.7 27.1 24.0 20.6 leading performance to drive re-rating P/B (x) 15.8 4.8 3.5 3.0 2.5 - 4 May 2020 3. JS Global (1691 HK, BUY) - Benefit Yield (%) 1.1 3.4 0.9 1.3 2.0 from e-commerce and home-cooking ROE (%) 7.5 2.7 9.2 10.3 11.3 - 2 Apr 2020 Net gearing (%)* 213.6 39.1 2.5 Net cash Net cash Source: Company data, Bloomberg, CMBIS estimates, *net debt (cash) / equity PLEASE READ THE ANALYST CERTIFICATION AND IMPORTANT DISCLOSURES ON LAST PAGE 1 MORE REPORTS FROM BLOOMBERG: CMBR AND http://www.cmbi.com.hk 27 Oct 2020 Earnings revision Figure 1: Earnings revision New Old Diff (%) RMB mn FY20E FY21E FY22E FY20E FY21E FY22E FY20E FY21E FY22E Revenue 3,759 4,334 4,840 3,703 4,272 4,773 1.5% 1.5% 1.4% Gross profit 1,536 1,754 1,972 1,533 1,737 1,948 0.2% 1.0% 1.2% EBIT 414 463 549 423 460 540 -2.0% 0.7% 1.6% Adjusted NP att. 283 318 371 288 314 361 -1.8% 1.5% 2.7% Adjusted EPS (RMB) 0.079 0.089 0.104 0.083 0.090 0.104 -4.1% -0.9% 0.3% Gross margin 40.8% 40.5% 40.7% 41.4% 40.7% 40.8% -0.5ppt -0.2ppt -0.1ppt EBIT margin 11.0% 10.7% 11.3% 11.4% 10.8% 11.3% -0.4ppt -0.1ppt 0ppt Net profit att. margin 7.5% 7.3% 7.7% 7.8% 7.3% 7.6% -0.3ppt 0ppt 0.1ppt Source: Company data, CMBIS estimates Figure 2: CMBIS estimates vs consensus CMBIS Consensus Diff (%) RMB mn FY20E FY21E FY22E FY20E FY21E FY22E FY20E FY21E FY22E Revenue 3,759 4,334 4,840 3,700 4,354 5,157 1.6% -0.4% -6.1% Gross profit 1,536 1,754 1,972 1,561 1,802 2,148 -1.6% -2.7% -8.2% EBIT 414 463 549 401 467 560 3.4% -0.8% -2.1% Adjusted NP att. 283 318 371 262 311 405 8.1% 2.2% -8.4% Adjusted EPS (RMB) 0.079 0.089 0.104 0.075 0.091 0.118 5.5% -2.1% -11.8% Gross margin 40.8% 40.5% 40.7% 42.2% 41.4% 41.7% -1.3ppt -0.9ppt -0.9ppt EBIT margin 11.0% 10.7% 11.3% 10.8% 10.7% 10.9% 0.2ppt 0ppt 0.5ppt Net profit att. margin 7.5% 7.3% 7.7% 7.1% 7.1% 7.9% 0.4ppt 0.2ppt -0.2ppt Source: Company data, CMBIS estimates PLEASE READ THE ANALYST CERTIFICATION AND IMPORTANT DISCLOSURES ON LAST PAGE 2 ACCESS KEY TO OUR REPORTS ON BLOOMBERG: CMBR 27 Oct 2020 Focus Charts Figure 3: Joyoung sales/ NP att. growth Figure 4: 3Q20 sales growth, by listed co. 30% 25% 80% 71% 23% 22% 25% 20% 17% 20% 16% 15% 15% 15%13% 60% 12% 11% 9% 11% 11% 45% 10% 8% 6% 7% 6% 40% 0% 0% 22% -1% -5% 20% -10% -10% 1% 0% Ecovacs Bear Joyoung Supor Sales growth (%) NP att. growth (%) Sales growth (YoY) Source: Company data, CMBIS estimates Source: Company data, Bloomberg, CMBIS estimates Figure 5: 3Q20 NP att. growth, by listed co. Figure 6: Joyoung vs China appliances sales growth 90% 82% 25.0% 22.1% 10.0% -0.4% 60% -5.0% -1.1% -20.0% 30% -35.0% 7% n/a 2% 4Q17 3Q19 2Q17 3Q17 1Q18 2Q18 3Q18 4Q18 1Q19 2Q19 4Q19 1Q20 2Q20 3Q20 0% 1Q17 Ecovacs Bear Joyoung Supor China home appliances sales growth (YoY) China retail sales growth (YoY) NP att. growth (YoY) Joyoung sales growth (YoY) Source: Company data, Bloomberg, CMBIS estimates Source: Company data, NBS, CMBIS estimates Figure 7: Sales growth by brand segment Figure 8: JS Global sales/ adj. NP att. growth 40% 210% 194% 34% 30% 170% 142% 30% 26% 130% 23% 94% 20% 18% 72% 20% 17% 90% 16% 15% 42% 27% 28% 50% 23% 12% 9% 15% 25% 15% 13% 17% 7% 12% 12% 10% 10% 2% -20% -30% -24% 0% FY17A FY18A FY19A FY20E FY21E FY22E 1H19A 2H19A 1H20E 2H20E Sales growth (%) NP growth (%) Joyoung SharkNinja Total Adj. NP att. growth (%) Source: Company data, CMBIS estimates Source: Company data, CMBIS estimates PLEASE READ THE ANALYST CERTIFICATION AND IMPORTANT DISCLOSURES ON LAST PAGE 3 27 Oct 2020 Assumptions Figure 9: CMBIS’ assumptions USD mn FY17A FY18A FY19A FY20E FY21E FY22E Sales by brand (USD mn) Joyoung 1,054 1,179 1,280 1,477 1,687 1,851 SharkNinja 477 1,477 1,736 2,283 2,648 2,989 Others 33 25 - - - - Total 1,563 2,682 3,016 3,759 4,334 4,840 Sales growth by brand (%) Joyoung -2.5% 11.9% 8.6% 15.4% 14.2% 9.7% SharkNinja 210.0% 17.5% 31.5% 16.0% 12.9% Others 46.7% -23.5% -100.0% #DIV/0! #DIV/0! #DIV/0! Total 41.7% 71.5% 12.5% 24.6% 15.3% 11.7% Sales by segment growth (%) Cleaning 233.2% 5.6% 28.4% 18.4% 14.2% Food preparation 27.3% 35.2% 3.2% 19.0% 14.3% 9.3% Cooking -1.6% 25.6% 37.4% 28.7% 14.0% 11.4% Others 23.4% 22.3% -2.7% 0.9% 1.9% 2.6% Sales by region growth (%) China -1.4% 11.6% 6.8% 16.0% 12.6% 10.2% North America 5880.5% 192.9% 11.2% 29.0% 14.0% 9.0% Europe 651.9% 263.2% 67.8% 48.0% 35.0% 30.0% Other markets 42.7% 258.6% 33.5% 17.0% 15.0% 13.0% GP margins by segment Joyoung 32.2% 32.1% 33.3% 31.8% 33.8% 34.0% SharkNinja 37.0% 42.2% 41.1% 47.8% 45.4% 45.6% Others 32.2% 39.4% 38.7% 43.8% 42.1% 42.1% Total 33.2% 37.3% 37.4% 40.8% 40.5% 40.7% Opex breakdown D & A -0.8% -1.7% -1.7% -1.2% -1.0% -0.9% Admin exp.