Here’s one Hong Kong-listed DIY stock all investors should have their eye on if the stock market crashes again. –
During the pandemic lockdown, many people have stayed at home more and perhaps spend more spare time on their long overdue do-it-yourself (DIY) projects and initiatives.
It has never been easier for an average person to, say, build or upgrade a piece of furniture with a sea of “how-to-DIY” social media snippets and user-friendly yet powerful tools widely available in any home improvement retailer.
To many amateurs and even semi-professionals, it is not only more cost-effective to build it yourself, but also simply because it’s fun.
According to a market research report on the DIY home improvement segment:
“The DIY Home Improvement Market was valued at US$819.53 billion in 2018 and is expected to reach US$1,137.57 Billion by 2025 with a CAGR of 4.8% over the forecast period.
North America is expected to dominate the DIY home improvement market with the highest share followed by Europe.”
From an investment perspective, it is certainly an interesting segment, especially with the Covid-19 pandemic having likely fast-tracked more consumer demand.
One can observe that the stock market speaks for itself, the US home improvement retailers like Home Depot Inc (NYSE: HD) and Lowe’s Companies Inc (NYSE: LOW) have significantly outperformed the broader S&P 500 Index this year.
Techtronic Industries in Hong Kong
Companies that manufacture hand and power tools and equipment are doing relatively well too.
One of the largest tool markers, Stanley Black & Decker (NYSE: SWK) saw its share price almost double since the March low.
Meanwhile, Hong Kong-listed Techtronic Industries Co Ltd (SEHK: 669), also known as TTI, has seen its share price surge more than 70% for the same period.
TTI is one of the constituent stocks of the Hang Seng Index. It designs, manufactures, and markets power tools, hand tools, accessories, outdoor power equipment and floor care appliances for home & industrial usage.
For consumers walking along the power tools aisle of Home Depot or Lowe’s, one may think there are numerous brands for selection.
The truth is that most of the brands are controlled by a handful of tool makers like Stanley Black & Decker, Bosch, Fortive, and, of course, TTI.
TTI has high revenue concentration in the business of power equipment, accessories, storage and hand tools (88%) and regionally in North America (77%) and Europe (15%) – exactly the sweet spots for the DIY home improvement market by products and by regions.
Long-term performance trends were particularly strong as well with sales, EBIT, and net profit at +10%, +17%, and +23% CAGR respectively, over the past 10 years.
Adding on top, TTI management seems to be doing well to expand its gross margin gradually over the past 10 years.
Within TTI’s lines of business, Milwaukee (industrial tool business) delivered exceptional sales growth of 21% in 2019, and above 20% in all regions (North America, Europe, and the rest of the World), which were impressive numbers by any measure.
Even in H1 2020, Milwaukee was able to deliver sales growth of 13%, and Ryobi (its DIY power tool business) delivered double-digit sales growth as it benefitted from the DIY home improvement trend.
TTI is worth a closer look and perhaps it would be a nice addition to the portfolio for gaining some exposure to the home improvement market.
In all respects TTI is a high-quality stock to own but investors must also aware of the key risks such as its expensive valuation and ongoing US-China tensions.
The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Hong Kong contributor Loonie Yen doesn’t own shares in any companies mentioned.
The Motley Fool Hong Kong Limited(www.fool.hk) 2020