We maintain "Accumulate", and reduce TP to HK$89.10. We reduce our Techtronic Industries （the "Company"） 2023-2025 shareholders' net profit forecasts to US$953 mn （-16.9%） / US$1,072 mn （-13.8%） / US$1,185 mn （-16.5%）， respectively. We forecast 2023-2025 earnings per share of US$0.519, US$0.583, and US$0.642, respectively. Our TP represents 22.0x/ 19.6x/ 17.8x 2023-2025 PE ratio and 3.7x 2023 PB ratio.
　　The Company’s 1H23 results missed our expectations. The Company's revenue in 1H23 was US$6.9 billion, a decrease of 2.2% YoY, in line with our expectations. However, the Company’s net profit was US$476 million, a decrease of 17.7% YoY. As the process of channel destocking was slow in 1H23, the Company’s performance was poor. The inventory reduction initiatives within the Company’s network and its customers led to an increase in the Company’s expense ratio. In addition, the substantial increase in US interest rates has led to a significant increase in the Company's finance costs, which dragged down the Company’s net profit.
　　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 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.
　　Markets outside of North America recorded steady growth. In 1H23, 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’s performance in 2H23 may improve. We believe that the process of channel destocking may come to an 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 net profit of the Company may decline in 2023.
　　Risks: Customer preferences may change; relationship with major customers　Risks: Customer preferences may change; relationship with major customers