Promising FY22-23F EPS growth outlook
? We expect TTI to report a 23% yoy net profit growth for 2H21F.
? FY22F earnings outlook remains solid, driven by sustained market share gain, stable GPM expansion and the new infrastructure bill in the US.
? Reiterate Add with a higher TP of HK$192.10, based on 28x FY23F P/E.
TTI will continue to benefit from sustained market share gain
We believe Techtronic Industries’ (TTI) recent share price weakness is due to fund flow rotation away from 2021 outperformers to defensive stocks, and investors’ concerns over the potential 3-4 interest rate hikes this year in the US, which could hurt housing affordability. We expect TTI to maintain a 19% revenue growth in FY22F despite a high base (we estimate +36% yoy for FY21F), underpinned by: 1) sustained market share gains in professional and DIY tools, 2) a c.50bp GPM expansion from the launch of new innovative cordless products, and 3) the US$1.2tr infrastructure bill, which will kick off in 2022. We raise our FY22F/23F EPS forecasts by c.5%/7% as we anticipate stronger revenue growth in the professional tools segment and stable GPM expansion (c.50bp p.a.).
2H21F revenue likely grew 23% yoy
We estimate TTI’s 2H21F revenue grew 23% yoy despite higher logistics and raw material costs and a slowdown in the DIY market. We believe TTI experienced less production disruption in its Vietnam factory as it increased inventory in 1H21, along with excellent supply chain management (shipping and land transportation). Home Depot (HD US, Not Rated) posted a 10% yoy revenue growth (8% in 2Q21) and a 6.1% yoy SSSG in 3Q21 (4.5% in 2Q21), which suggests TTI’s 3Q21 sales were strong (Home Depot accounts for c.47% of TTI’s FY21F revenue). We estimate TTI’s GPM rose 57bp yoy in 2H21F despite inflated materials costs (ICs, battery cells, plastics), as it generated over 30% of its revenue from new products (cordless DIY tools and MX Fuel light equipment).
Solid FY22F revenue growth of 19% and net profit growth of 23%
We believe TTI will continue to gain market share in the DIY market due to the growing cordless penetration, thanks to its tools with noise reduction features and zero emission. In the professional tools segment, we expect over 20% revenue growth p.a. in F22-23F, thanks to the upcoming launches of 18V self-propelled walk mowers (launches in 1H22F) and the expanding product range of Milwaukee’s MX Fuel. On the macro front, we expect TTI will benefit from the rising demand for professional tools over the next 10 years as the US$1.2tr infrastructure bill kicks off in 2022. The US government will spend c.US$550bn in 2022-2026 (average annual spending of c.US$110bn). We also expect c.50bp GPM expansion in FY22F due to new product launches (Milwaukee’s category expansion) and rising cordless penetration (launch of new Ryobi cordless outdoor tools). As a results, we forecast FY22F net profit to grow c.23% yoy to US$1.35bn.
Reiterate Add with a higher TP HK$192.10
We reiterate Add on TTI. We raise our TP to HK$192.10, now based on 28x FY23F EPS (previously 34x FY22F), a 20% premium to its peers to reflect its rapid market share gains in the power tools market and faster-than-peers’ EPS growth (26% EPS CAGR in FY20- 23F). Share price catalysts: sustained GPM expansion and easing supply chain disruption. Risks: a sharp slowdown in the US housing market and a surge in raw material costs.