Business Summary:

The principal activities of the group are the manufacturing and trading of electrical and electronic products. Products by division include Power Tools, Accessories, Hand Tools, Outdoor Power Equipment, Floor Care, Appliances for Do-It-Yourselfer (DIY), professional and industrial users in the home improvement, repair, maintenance, construction, and infrastructure industries. The group is accelerating the transformation of these industries through environmentally friendly cordless technology.

The group has divisions in Asia, Australasia, North America, Latin America, Europe, Middle East, Africa & Indian Subcontinent so that the business is worldwide diversified. In particular, Asia divisions is located in Kwai Chung (Hong Kong) & Dongguan (China).

Product by brand (total: 8) includes MILWAUKEE, AEG, RYOBI, HOMELITE, EMPIRE, STILETTO, HART, HOOVER, ORECK, VAX and DIRT DEVIL.

Financial Summary:

During the interim period as of the end of June 2018, net profit rose 24.6% yearly to US$255 million. Earnings per share equaled US 13.89 cents. An interim dividend of HK38 cents was declared with an increase of 36.9%. Sales revenue increased 19.1% to US$3,431 million which is the ninth consecutive year of record. (As of first half of 2009, this figure was just above US 1,500 million.) Gross profit margin improved for the tenth consecutive year in the first half from 36.6% to 37.1% (This figure was around 32% as of first half of 2009). Total operating expenses for the period amounted to US$996 million as compared to US$826 million previously. R & D spent increased by 20% from 2.7% revenue to 2.9%. Total shareholders' funds amounted to US$2.9 billion, and increase of 6.1% as compared to December 31, 2017. Total inventory was at US$1,578 million as compared to US$1,415 million as at June 30, 2017. Days inventory maintained at 88 days.

The Power Equipment accounting for 86.3% of total sales, delivered a first half with US$3.0 billion sales which represented a 20.1% increase compared with the same period in 2017.  MILWAUKEE continued strong growth momentum with a 29.8% sales increase while RYOBI ONE+ sustained double-digit sales growth. Further, Floor Care and Appliances business delivered double digit sales growth of 12.9%

Investment Firm Analysis

JP Morgan said the group's interim sales up around 20% year-on-year despite economic uncertainties, representing the fastest growth in the past ten years; far beating both the market projections. This broker reiterated Buy on TECHRONIC IND at the target price $68.  However, Citi research released on 26 Oct 2018 cut its target price from $57 to $54.; owing to a slightly better than expected 3Q result of its competitor Stanley Black & Decker (SBD). Also Citi forecasted slowdown in demand growth in the US. 

Risk:

a) fluctuating local material cost and transportation cost from China to USA and Europe.

b) If Euro currency decreases too much, US sales will expose keen competition with other manufacturers in Europe.

c) Increasing European Union energy label requirements may affect the sales of Floor Care and Appliance Business.

d) If trade war deteriorates between China and US. that may not be offsetted by the benefits under RMB depreciation for the export company.

e) downturn of US consumer index

Technical Analysis:

It is suggested to accumulate the stock when the price is close to the lower level of Bollinger bands of around $39-$40. The medium target price is $44 of 50-day moving average. Cut loss level is set at $37.

References:

Company Interim Report 2018

www.aastocks..com.hk

www.etnet.com.hk

www.afe-solutions.com

 I, Gary Tam, am a licensed person under the Securities and Futures Commission. Until the date this commentary was published, neither I and/or my affiliates are the beneficiary of the securities mentioned herein or are entitled to any financial interests in relation thereto.