Both sales growth and margin were under massive pressure in 4Q22, due to pandemic and industry-wide de-stocking. Even though management provides no guidance for FY23E, we do agree that there are more tailwinds (e.g. cheaper input costs and freight rate, better discounts) than headwinds (macroeconomic risks and potential tariffs). And the long-term growth story is still valid.
　　FY22 result roughly inline but dividend missed. JS Global’s sales fell by　2% YoY to US$ 5.0bn and its net profit also dropped by 21% YoY to US$ 332mn, both were inline with the Company’s latest guidance. We believe the weak result was due to: 1) Joyoung’s sales decline in 4Q22 under the pandemic, and 2) SharkNinja’s margin pressure, esp. when industry becomes rather promotional (some peers had offered retail discounts as much as 50%-60% to destock but SN was light on that), plus 3) the one-off bonus paid to management (about US$ 34mn). Noted that no dividend was proposed this time, because the management believes that would unnecessarily distort the financials before potential spin-off. Even though we do suspect the de-stocking cycle could last for another 6 to 12 months, SharkNinja’s inventory days already fell back to 82 days (vs 108 days in 1H22), not too far from the 71 days in FY19.
　　No numbers were provided for 1Q23E but we expect no surprises.Based on industry trend and our estimates, we believe sales growth in 1Q23E could be flattish or slight positive for JS global (positive for Joyoung and flattish or slight drop for SharkNinja). Management did state that they are comfortable with the trend in 1Q23E.
　　No specific guidance for FY23E but management is confident on GP　margin expansion. Assuming no distortion from the import tariffs (still one of the major swing factors), GP margin in FY23E should have a nice expansion (CMBI est. 1ppt). The reason is that various headwinds have now turned into tailwinds, namely: 1) the shipping costs, as freight rate had tanked from ~US$ 16K to just ~US$ 1.8K per container, 2) lowered costs for raw materials and key components (e.g. batteries, electronics parts) and 3) a less promotional environment (as de-stocking may ease in 2H23E) and 4) mild benefits from the CNY depreciation in 1H23E.
　　Maintain BUY with TP to HK$ 9.72. We cut FY23E/ 24E net profit forecasts by 9%/ 6% to factor in: 1) drags on Joyoung during pandemic, 2) slower than expected US and EU sales growth and 3) better GP margin expansion ahead. Our new TP is based on 11x FY23E P/E (up from 10x). Its valuation is not demanding at 9x FY23E P/E, compared to 5 years average of 17x.