Outperformer among power tools makers
? TTI’s net profit rose 37% yoy to US$1.10bn in FY21, meeting 100% of our FY21 forecast, thanks to a 35% revenue growth and 54bp GPM expansion.
? We estimate a 20% FY22F net profit growth, driven by a 15% revenue growth and a 50bp GPM expansion on innovative battery-powered tool launches.
? Reiterate Add as TTI should keep gaining global market share in power tools.
Robust Milwaukee performance led to FY21 net profit rising 37%
Techtronic Industries (TTI) FY21 net profit rose 37% yoy to US$1.10bn, in line with our and Bloomberg consensus’ full-year forecast, driven by revenue growth of 35% and GPM expansion of 54bp. The robust topline growth was led by Milwaukee (professional tools, +41% yoy) and Ryobi (DIY tools, double-digit growth). FY21 GPM expanded by 54bp to 38.8% (38.6% in 1H21 vs. 39.0% in 2H21), driven by high-margin new products launches and productivity improvement. SG&A expenses increased by 36% yoy and was c.30% of FY21 revenue (29.5% in FY20), due to higher selling and distribution expenses amid surging freight rates and logistic costs. R&D expenses stayed at a healthy level of 3.2% of FY21 revenue.
Milwaukee to achieve c.20-25% revenue growth in FY22-24F
Milwaukee brand revenue rose 41% yoy in FY21, thanks to continuous innovative high end new products roll out. We believe that Milwaukee should achieve c.20-25% revenue growth in FY22-24F, underpinned by: 1) rising government infrastructure projects, 2) new product launches, including zero emission battery-powered outdoor products, storage solutions, personal protective equipment (PPE) and mechanic hand tools, etc, and 3) continued category expansion in MX FUEL Light Equipment.
Ryobi to maintain 10-15% revenue growth in FY22-24F
Ryobi brand of tools achieved double-digit revenue growth in FY21, driven by DIY and outdoor products. Ryobi launched over 70 new outdoor products in FY21, including battery powered lawn mowers, snow blowers and handheld outdoor equipment, which captured market demand for cordless migration. We expect Ryobi to maintain healthy revenue growth of 10-15% in FY22-24F, driven by wider cordless product offerings.
Built-up inventory to catch up with strong sales momentum
The company increased inventory by 50% yoy to US$4.85bn, up by 14 days from 120 days in FY20 to 134 days in FY21, as it strategically built extra inventory in preparation of any disruptions in supply chain and buffering inflation risks. TTI also wants to catch up with the strong sales momentum. It plans to further increase production capacity in the US for better cost control and reduce reliance on manufacturing in China.
Reiterate Add with a target price of HK$192.10
We reiterate our Add call as we believe that TTI will continue to gain global market share in power tools, thanks to its advanced battery platform. We retain our earnings forecasts and TP of HK$192.10, based on 28x FY23F EPS, +2 s.d. of its 5-year average, reflecting its strong EPS growth (19% EPS CAGR in FY21-24F). Potential re-rating catalysts include sustained GPM expansion and stable market share gain. Downside risks: surge in raw material costs and logistic costs.