Description

Company Background

SN US was spun from JS Global (1619 HK) last summer and at the time was generating 80%+ of JS Global’s profits. The reason for the spin was (1) it’s a great fundamental story with (2) potential value unlock from being listed on a US exchange given most of the biz is in the US. We are only in the early innings of the value unlock that’s starting to take place. The company has had tremendous success over the past 5 years growing at a 25% CAGR from 2019-2023. The SN business is split up into Shark vs Ninja, both each ~50% of the biz. Products include vacuums (robot, upright, cordless), blenders, coffee machines, air friers, grills, etc. Over time the business has rapidly expanded, now involved in 27 sub-categories across cleaning, cooking, food preparation and other, which includes home Environment, beauty, etc.

Management attributes its disruption, innovation, and success to “3 Pillars” –

(1) Grow share in existing categories

• Leading share in a multitude of categories and growing share in new existing categories
• Now in outdoor categories & excited about the beauty category
• Similar to YETI, loyal customers trial and upgrade

(2) Expand into new categories

• Shark – Shark’s launch into hair dryers in US 4Q12, the $100+ price segment of hair styling tools, saw TTM category growth of $132m by FY22, taking 7% of share from the under $100 segment, adding the most dollar growth to the sub-category. It delivered $66m, 1.5x the growth of the next top growing brand in the same category.
• Ninja CREAMi – Launched in 2021, the US ice cream home maker category was $53m, and by FY22 Ninja CREAMi generated sales of $78m, ~2x the category size and was the #1-selling ice cream maker in the US in FY22.  
• The go forward plan is to offer 2 new products per year – 1 for Shark and 1 for Ninja

(3) Globalize Brand

• FY22 Call “In the European market, SharkNinja even bucked the trend and achieved a double-digit growth on a constant currency basis. It is worth mentioning that our offline markets in Germany and France have also been launched. And we are confident in the long-term development of the European markets.”
• “…gain momentum, driven by the U.K., Germany and Japan, where we continue to invest and lay the foundation for our future growth. Finally, we've proven our ability again to navigate challenges in the markets and outperform our competition.”

 The most interesting chart from all of their presentations/fillings is the following. They are not a one trick pony, they build better mousetraps and are clear share winners globally in most of the categories they operate in:

TAM – SN looks at its $112bn TAM as the small appliance market as defined by Euromonitor in the US and International markets grew at a 7.2% CAGR from 2017 to 2022 and is expected to accelerate to an 8.4% CAGR from 2022-2027. This would suggest SN has a long runway to go.

So why now/what’s the bull case?

• Continued Sales Growth - mid teens sales growth% over the MT, doubling of sales
  • Product Innovation: R&D $s spent among highest globally
  • Expanding the TAM: adding 2 new product categories per year (air purifiers, personal care/hair curler recently)
  • New Market Penetration: EU expansion (Germany, France, Italy, Spain)
  • Strong Value Proposition: products sold sit at the "value for money" position as feedback among customers is the products work as well as the most expensive/top tier brand at half the price. This allows them to gain share
  • Strong Demographics: Growth Driven By Growing Mid Class
• Still Growing Post COVID. After flattish sales in FY22, set a new baseline for SN, SN grew +15% in 2023 and accelerated in 1Q24 to +28%
  • Grew +28% in 1Q24 and the rest of 2024 sets up nicely for another very strong year.
• Material Margin Expansion – GM% already back to 45-50% and mid/high-teens EBITDA%
  • Commodities have started coming down: steel, plastic, paper board, copper, etc have all come down.
  • Supply chain asset light: outsource production to OEMs
  • Operating leverage from continued salesgrowth
• Valuation Cheap despite having the best/one of the best EPS algos. Trades at 18x p/e
• Catalysts?
  • Quarterly earnings beat
  • New product launches
  • Capital allocation: Scrapped the divvy before the spin. Bringing the dividend back could get dividend investors interested in the stock
  • Show me story/continued beat and raise on sales/margins creates opportunity for re-rating

Valuation/PT

Using YETI’s 7yr avg p/e of 23x and our EPS of $4.17 = $95.91 (+28% upside).

Bear

• Related party transactions btwn Jouyoung/SN (Jouyoung is SN's OEM): SN will still use Jouyoung OEM over next 2 years and then start to diversify. Does this cause issues?
• Sustainability of top line:
  • Sales have doubled since 2019, is this the biggest covid beneficiary among all its peers? Or is it due to innovation/geo expansion/new category expansion like the company has said.
  • Competition from peers/technology: hyper competitive categories in the US and internationally. Can SN continue to innovation? Will they continue to see a promotional environment like last year given excess inventory, and is that at a normalized level?
  • 1/2 growth comes from new products and markets - executing with Shark and Ninja expected to launch 1 new product each year as mentioned before
• Macro: US/EU Recession? This biz will underperform in a recession
• Customer Concentration - Largest retailers include Walmart, Amazon and Costco, each of which accounted for more than 10% of net sales, and together make up ~40% of sales

Catalyst

• Quarterly earnings beat
• New product launches
• Capital allocation: Scrapped the divvy before the spin. Bringing the dividend back could get dividend investors interested in the stock.
• Show me story/continued beat and raise on sales/margins creates opportunity for re-rating