And it is set to benefit from US housing recovery.
According to Maybank Kim Eng, TTI’s FY12 net profit rose 32% YoY to USD201m on revenue growth of 5% YoY growth and a 0.9ppt gross margin expansion.
Maybank adds that looking ahead, it is confident that TTI will be benefited from the US housing recovery; we also expect continuous market share gains in other non-US markets.
Meanwhile, sustainable margin expansion story remains intact. We adjust our estimates by <1% and trim our TP slightly to HKD21.0 on an unchanged FY14F PER of 15x.
TTI chalked up revenue growth of 8% YoY in FY12 with growth in all geographic regions, underpinned by doubledigit growth of its Milwaukee products. Thanks to new products which accounted for one-third of total sales, EBIT margin improved to 8% in FY12 from 7.1% in FY11.
Floor care sales coming back in 2H12. We saw signs of improvement in the sales and EBIT margin of the floor care division in 2H, although FY12 revenue dropped 2% YoY owing to a strategic exit of unprofitable OEM business.
Management highlighted that a new generation of floor care products was launched in 4Q12 and have garnered positive customer feedback so far. The full impact of the new products should kick in this year; we expect a floor care sales rebound of 8% YoY in FY13F.
Consistent margin improvement since 2008. TTI’s gross margins expanded to 33.5% in FY12 from 32.6% in FY11, on better product mix and improved economies of scale. However, margins are still below those of global peers, Stanley Black & Decker (37%) and Makita (39%).
We believe the gap could narrow in upcoming years, by increasing sales of high margin power tool accessories (drill bits etc), own-brand floor care products and productivity gains at its consolidated production plant in China.
Improving balance sheet and payout ratio. Robust revenue and operational efficiency resulted in positive free cash flow of USD275m. Gearing fell
significantly to 31% in FY12 from 65% in FY11, while its payout ratio improved to 19.7% from 17.5% in FY11. In an anticipation of strong operating cash flow and limited CAPEX, TTI is likely to turn into a net cash position from FY15F onwards.
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