According to the Zhongtong Financial APP, CICC has issued a research report stating that it maintains the 'outperform' rating for Techtronic Industries (00669), with a 2.8% and 1.9% increase in EPS estimates for 2024 and 2025, respectively, to 0.62/0.70 USD. The target price is HKD 115.49. The company announced its H1 2024 results: revenue of 7.312 billion USD, up 6.3% YoY; net income attributable to shareholders was 550 million USD, up 15.7% YoY, corresponding to EPS of 0.30 USD. The performance is slightly better than expected, mainly due to the improvement in gross margin and slightly higher revenue growth in 2024.

CICC's main points are as follows:

Power tools maintained growth in the first half of the year, and the diversification of regions has progressed smoothly.

In terms of products, the revenue of power tools in H1 2024 was 6.884 billion USD, up 6.7% YoY, which was the main driving force for revenue growth. Among them, the main brand Milwaukee's revenue increased by 11.2% when converted into local currency. In particular, Ryobi achieved mid-single-digit growth, mainly driven by strong performance in outdoor products. Revenue from floor care business was 0.428 billion USD, down 0.4% YoY. In terms of regions, the company's revenue in North America was 5.461 billion USD, up 5.7% YoY; revenue in Europe was 1.251 billion USD, up 8.6% YoY; and revenue in other regions was 0.599 billion USD, up 6.9% YoY.

The company's profit level has increased YoY for 16 consecutive years.

In H1 2024, the company's comprehensive gross margin was 39.9%, up 0.7ppt YoY, mainly due to the growth of high-value product Milwaukee and the launch of new after-market battery business. The net profit margin in H1 2024 was 7.5%, up 0.6ppt YoY, mainly due to the decrease in financial expenses and the control of management expense ratio. The R&D expense ratio increased by 0.5ppt YoY to 4.1% in H1 2024, while the selling and administrative expense ratio decreased by 0.2/0.1ppt to 17.0%/10.4%, respectively. The inventory turnover rate was 1.08, up 0.22 YoY. According to the company's public earnings conference, the company's finished product inventory has returned to pre-epidemic levels. The company's operating cash flow in H1 2024 was 0.775 billion USD, up from 0.694 billion USD in H1 2023.

Inventory clearance was completed at the beginning of 2024, and terminal demand for the industry was at the bottom, and it is expected that terminal demand will improve after the interest rate cut.

At the beginning of 2024, power tools returned to relatively reasonable positions in terminal channels and the company's inventory. According to the US Bureau of Economic Analysis, the actual annualized consumption of tools, hardware and supplies in June 2024 was 40.9 billion USD, up 2.1% YoY. After two consecutive years of decline in demand for hardware tools, since February, demand has turned positive and there has been some YoY fluctuation. Overall, terminal demand is still weaker than during the epidemic. As two-thirds of the downstream exposure to hardware tools is related to real estate, it is recommended to continue to pay attention to the effect of interest rate reduction on the demand for real estate and the transmission of demand for hardware tools.

Risk

Expectations of a US interest rate cut have been postponed; new product promotion is not as expected.