Techtronic Industries’ (the "Company") 1H23 results missed our expectations. The Company's revenue in 1H23 was RMB6.9 billion, a decrease of 2.2% YoY, basically in line with our expectation. The Company’s gross profit margin increased 0.2 ppts to 39.3%. However, the Company’s net profit was US$476 million, a decrease of 17.7% YoY. The decline in net profit exceeded our expectations. In addition, the substantial increase in US interest rates has led to a significant increase in the Company's finance costs. Although the Company’s performance in 2H23 has a high possibility to improve, the full-year profit may still be lower than our previous expectations. Therefore, we will decrease our profit forecasts and target price in our next company report.
　　Milwaukee business still did well. In 1H23, the Company’s flagship Milwaukee revenue increased by 8.7% YoY in local currency. The high gross profit margin of Milwaukee business has contributed to the increase of the overall gross profit margin of the Company. Besides, this business is well positioned for sustained long term sales growth based on the shift from legacy power sources like petrol and corded to cordless, geographic expansion, deep vertical penetration, and new product introductions. The Company expects its Milwaukee business to maintain long term sales growth of high single digit to low double digit.
　　Consumer businesses performed poorly due to channels destocking pressure. The Company’s consumer power equipment revenue declined by low double digits in 1H23, in part driven by inventory reduction initiatives within the Company’s network and its customers.
　　Markets outside of North America recorded steady growth. The Company’s revenue in North America declined 3.9% YoY in local currency. The Company’s sales in Europe grew 10.1% YoY in local currency. The Company’s sales in the rest of the world, featuring Australia and Asia, delivered 5.7% growth YoY in local currency.
　　The Company expects its revenue in 2H23 to achieve single digit growth. We believe that the process of channel destocking may come to end in 2H23. Therefore, the Company’s performance in 2H23 may improve. However, it may be difficult for the single digit growth in 2H23 to offset the drag on the full-year results from the weak performance in 1H23. We expect the net profit of the Company may decline in 2023.