Techtronic's net profit to soar 25% to USD121m

Here's why its business is on-track.

According to Maybank Kim Eng, Techtronic is scheduled to report its interim results in mid-August. Maybank expects revenue and net profit to grow 7% and 25% YoY to USD1,982m and USD121m respectively.

Here's more:

TTI's bottom-line is expected to grow faster than top-line due to an improvement in gross margins and operating efficiency. We project TTI’s GPM to increase to 33.8% in 1H13 from 33.5% in 1H12 owing to increased contribution from high-margin new products (1/3 of total sales) and professional industrial tools (Milwaukee). Also, the continuous downtrend of raw material prices (copper, steel, plastic and lithium) also favor TTI’s profit margin outlook.

Business on-track. Power equipment division is doing well, especially in the US, thanks to on-going US housing recovery. Key brands like Milwaukee should grow at high-teens, while consumer brand Ryobi is forecast to growth at mid-single digit.

For floor-care unit, TTI is expected to launch about 25 new floor-care models gradually in 2013. The feedback from its major clients like Wal-Mart and Target is positive. With strong product pipeline on hand, we expect the segment to resume sales growth momentum with EBIT margin expansion amid a surge in advertising and marketing expenses for its new floor-care products.

Relocation of Mexico plant. TTI has decided to relocate its Mexico production plant to China. The existing site is responsible for floor-care products and accounts for <20% of total capacity.

The rationale behind is to enjoy lower labour costs and productivity gains in China. According to management, the relocation cost incurred should be insignificant and well-budgeted, TTI believes there are advantages in cost saving and efficiency gains over the long-run.

The relocation process will be completed in mid-2014 and full benefits are expected to be seen in 2H of 2014 onwards.