Techtronic Industries Company Ltd (0669.HK) is a leading manufacturer of cordless power tools in the world. The company manufactures power tools, accessories, hand tools, outdoor power equipment, and floor care appliances for do-it-yourself users, professionals, and industry. The products are available under well-recognized brands such as MILWAUKEE, EMPIRE, AEG, RYOBI, HOMELITE HOOVER, DIRT DEVIL, VAX, and many more.[mepr-active membership=”1734″ ifallowed=”show” unauth=”message” unauth_message=”Please login or purchase a membership to view full text.”] Techtronic Industries has reported its 10th consecutive year of record revenue. The same applies to profit and gross margin, which has been both increasing for over ten straight years. The company is part of Forbes’ Global 2000 list.
Techtronic Industries operates through two segments. The power equipment segment contributed to 89 percent of the company’s revenue and grew by 13 percent in 2019. The floor care and appliance segment makes up 11 percent of the revenue but shrink by around 14 percent in 2019. Nevertheless, profits increased in both segments by about 11 and 13 percent respectively. North America is Techtronic Industries’ largest market, with 77 percent of the total revenue, followed by Europe with 15 percent. The company is well-positioned, given its diversified global manufacturing base in 6 countries, including the US. This makes Techtronic Industries also less vulnerable to trade barriers.
Techtronic Industries was founded in 1985 and is headquartered in Hong Kong. The company is listed on the main board of Hong Kong’s stock exchange since 1990 and is a constituent of the Hang Seng Index since 2019. Its shares can also be traded in Germany, the US, and Switzerland. The major shareholder is the chairman and founder, Mr. Horst Julius Pudwill, with ownership of around 18 percent, followed by Artisan Partners LP, a US investment company, with an ownership of about 5 percent. Seventy-five percent of the shares are in public hand.
With a workforce of over 33 thousand employees, Techtronic Industries reported revenues of 7.7bn USD and profits before tax of 661m USD in 2019. This is an increase of 9 and 11 percent respectively compared to the same period a year ago. In 2018, revenues and profits increased by 16 and 18 percent, respectively. The increase is mainly driven by a flow of innovative new products, productivity gains, and volume leverage. The operating margin of around 9 percent is above the industry average. Techtronic Industries’ cash reserves increased by 28 percent to 1.4bn USD, while debts also increased by 48 percent to 1.4bn USD in 2019. The company has made considerable investments to expand its global manufacturing footprint in Asia, Mexico, and the US.
Techtronic Industries shows a solid balance sheet with good profitability and financial strength. The equity ratio is at 44 percent and the gearing, defined here as total liabilities to total equity, at still acceptable 127 percent. However, the company has been issuing new debt over the past three years to finance its rapid growth and expansion. Moody’s daily credit risk score for Techtronic Industries is 6, indicating a medium risk, based on the day-to-day movements in market value compared to the company’s liability structure. Next earning results will be announced in mid of August.
Techtronic Industries’ shares are in an uptrend since September 2011 and increased more than fourteenfold in value since, 19 percent increase alone this year, and 138 percent since our first recommendation in November 2015. The company is currently priced at 29 times earnings, five times book value, and at 24 times operating cash flow. The latest dividends yielded about 1.4 percent. 8 out of 10 analysts have a ‘buy’ or ‘outperform’ recommendations on the stock.
Our conclusion: Techtronic Industries shows a robust balance sheet with good profitability and financial strength. The valuation is high but comes with a consistent compounded annual growth rate for revenue and profits of 10 and 23 percent respectively over the last ten years. The outlook for the global cordless power tools market is positive, with an expected yearly growth rate of 9 percent over the next five years.
Techtronic Industries sees vast growth opportunities in its core professional trade, industrial and DIY markets and is confident to deliver a robust result again in 2020, despite the corona pandemic. DIY tools and outdoor products, and floorcare are all experiencing significant sales increases also due to the strong growth of the global e-commerce business.
The network effect from Techtronic Industries’ leading cordless battery platforms continues to gain traction and is generating an unassailable advantage. The company is furthermore reaching new markets with a cautious geographic expansion strategy. Europe is a major focus of great potential. Canada, Australia, and New Zealand showed good successes with substantially outperforming the market. And Asia is an emerging opportunity for the company.
All in all, Techtronic Industries is well-positioned in a competitive environment. Assuming continued stable economic conditions, we expect the share price to increase another 10 to 15 percent until the end of this year.
AIS Rating: ★★★★☆
| 2015 | 2016 | 2017 | 2018 | 2019 | |
|---|---|---|---|---|---|
| EPS (UScents) | 19.3 | 22.2 | 25.6 | 30.1 | 33.6 |
| Change (%) | 18 | 15 | 15 | 18 | 12 |
| DPS (UScents) | 5.1 | 6.4 | 8.7 | 11.3 | 13.3 |
| P/E | P/E INDUSTRY |
P/B | P/CF | Equity Ratio* (%) |
ROE (%) |
LIAB./ Equity** (%) |
Div YLD (%) |
|---|---|---|---|---|---|---|---|
| 29 | 18 | 5 | 24 | 44 | 19 | 127 | 1.4 |
* Equity / Total Assets, ** Total Liabilities / Equity
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