1H22 earnings could drag by higher investments
- Stronger-than-expected Prime Day performance shows product power, despite weak macro environment
- Increasing investments on market expansion during 1H22 could skew earnings. Coupled with a more uncertain global economy, we stay prudent and trim TP to HK$11.1
- Following c.25% share price rally in past two months, near-term profit-taking could be possible. While we focus on JS Global’s positive medium-term prospects and growth opportunities in multiple markets, maintain BUY
Investment Thesis:
Positive strategic expansion. Riding on the successful acquisition of SharkNinja in 2017 and a group restructuring to list JS Global on the HK stock market since 2019, the company achieved a good ramp up in both revenue and profitability over the years. Moving forward, SharkNinja’s top brand awareness in the US and the UK, and its sound product R&D capabilities should all sustain market share gains. Besides, by leveraging on the strong local expertise, supply chains, and channel distribution of Joyoung, which ranks amongst the top players in China, a more strategic localisation of SharkNinja’s products for the Chinese market could also enrich overall medium-term potentials.
We expect the expenses required for market expansion to negatively impact near-term profits, but we stay positive on the company’s medium-term growth, which will also be driven by its expansion in multiple markets.
Valuation:
In view of higher-than-expected investments for market expansion during 1H22, and a low visibility in both domestic and overseas markets, we take a more prudent view and revise down FY22F/23F earning by 10.9%/6.7%. Our TP of HK$11.1/share continues to base on 11x FY22 PE, equivalent to 0.5 SD below its average PE to stay prudent (previous TP: HK$11.86).
Where we differ:
We are more prudent on FY22/FY23 GP margins of 38.1%/39.1% vs. the consensus, given a low market visibility in the near-term. Yet, its ample room to expand in existing and new categories & markets should support medium-term growth.
Key Risks to Our View:
Changes in trade policies; substantial raw material price fluctuations; intensified competition; macro downturn; etc.
