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Understanding Techtronic Industries (HKEX: 669): Tooling Up for Global Housing

Supplying tools to build and fix homes around the world.

One thing many investors may not be aware of about Hong Kong’s stock market is that it’s also home to companies that serve global markets – beyond just China.

A constituent member of the benchmark Hang Seng Index, Techtronic Industries Co Ltd (HKEX: 669) is one such company. Techtronic is a power tools, outdoor power equipment, and floorcare equipment manufacturer that primarily serves the repair, construction, and infrastructure industries.

Many of its largest customers are based in the US and Europe, with its recognisable power tool brands – like Ryobi and Milwaukee – being sold in stores to both do-it-yourself (DIY) consumers as well as professional contractors. One of its largest clients is North American-focused home improvement retailer Home Depot, which stocks many of Techtronic’s brands.

So, as a key component of the smooth building (and maintenance) of new and existing housing globally, what should investors know about Techtronic Industries?

Techtronic Hong Kong Roots And Strong Performance

Techtronic has a relatively long history in the Chinese city, having been co-founded in 1985 by entrepreneurs Horst Julius Pudwill and Roy Chung Chi Ping. The company originally started out as an original equipment manufacturer (OEM) for overseas brands and was first listed on the Hong Kong Stock Exchange in 1990.

Since then, it has grown into a key supplier of power tools for the massive home improvement market in both the US and Europe. In fact, its growing business – and accompanying profits – have resulted in improving gross margins over the past few decades.

Overall, that has driven extremely strong long-term performance in Techtronic’s share price. In fact, its total return (including reinvested dividends) since listing at the end of 1990 has been 41,603%. That equates to an annualised total return of 20.5% for investors that had held shares over the past 32 years.

Looking To Environmentally-Friendly Tools To Spur Growth

Like any other advancements in goods and services over the decades, power tools too have been through an evolution ever since Techtronic started in the business.

Many power tools, even today, are still running via cords and many of the outdoor power tools – like lawnmowers and chainsaws – can even run on natural gas or oil. These types of devices are both inefficient and polluting. In terms of corded power tools, they’re also not as versatile or flexible given users need to be close to a power port.

As a result, Techtronic has innovated and spent meaningfully on research and development (R&D) to stay ahead of the competition in the various niches in which it operates.

Today, Ryobi is a leading consumer-facing brand for DIY-ers, offering cordless power tools, lawnmowers and leaf blowers.

On the other side of the business, there is Milwaukee – one of the leading brands in North America for professional contractors and those in the business of construction. Milwaukee offers a suite of products including cordless jackhammers, wrenches, and drills. One thing all the products have in common is their use of rechargeable lithium-ion batteries.

Even though Techtronic’s overall sales dropped 2% year-on-year in H1 2023, its Milwaukee brand saw 9% year-on-year growth in its sales over the same period. Techtronic’s management has ambitious targets for its Milwaukee brand, with an internal target of high single-digit/low double-digit percentage growth in its global sales over the next three years (see below).

Source: Techtronic Industries H1 2023 earnings presentation

Producing Leading Tools For Housing

Overall, Techtronic operates in an industry that is likely to see continued demand – housing. Whether that is new housing or people staying in their homes to redecorate, demand for the power tools required will typically be there in some form.

Investors should remember that Techtronic derives around 75% of its revenue from North America, 15% from Europe and the remaining 10% from Rest of the World (ROW). While its business has seen a slowdown in recent quarters, as spending on housing decelerates, it has continued to show that it’s one of the leading producers of power tools globally.

For investors interested in getting exposure to global growth markets via the Hong Kong stock exchange, Techtronic Industries is one company certainly worth having on their radar.

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