JS Global Lifestyle Company Limited (1691) Earnings Call Transcript & Summary

Distinguished analysts and investors, good morning. I'm Mars Chen, JS Global Life Investor Relations and Corporate Communications. Welcome to the JS Global Life 2024 Annual Performance Conference. So before we officially begin, please allow me to introduce the management team who are here today. They are: Madam Han Run, Executive Director and CFO; Mr. Leon Liu, COO and SVP, Finance; Mr. Kenny Kan, COO of Joyoung; Mr. Max Miao, Board Secretary of Joyoung. And without further ado, please allow me to introduce Executive Director and CFO, Madam Han, to make an opening speech.

Good morning. Thank you for attending the 2024 Annual Performance Conference of JS Global Life despite your busy schedule. Here on behalf of JS Global Life, I would like to express my heartfelt gratitude to your long-term support and concern. 2024 is the first complete year of JS entering a new development stage and a new starting point. We have optimized the allocation of resources, attracted global talent and increased investment in R&D, user research, marketing and sales channel expansion. In our core business, we have made some progress and achievements. At the same time, we also have recognized there are some shortcomings in certain areas. Today, my team and I will also share with you some business achievements in 2024. Among them, Joyoung is still the sector with relatively large revenue of the overall group. Facing the increasingly fierce competition pattern and consumption environment in the operating area of Joyoung, we will still uphold the healthy and innovative DNA of Joyoung in 2024 and further promote the research and development of innovative products. In order to solve the small but important issues of live, Joyoung has launched the third generation of nonstick, zero-coat rice cooker to help consumers to make healthier rice that suits their own taste. We have also introduced an instant water purifier that does not need to replace the filter for 6 years. We also have this light tone, fully automatic, wall breaking soy milk machine with adjustable grinding degree and a series of new products with cordless [indiscernible] and flat floor washer that can prevent hair from winding as well as in Asia Pacific, we have also continuously made efforts to build the team with more perfect functions and more great progress in IT, finance, internal control, legal affairs, talent attraction and corporate culture compared with the beginning of this position of 2023. And at the same time, our team has also achieved outstanding achievements. The Japanese team continue to maintain a steady growth in market share and sales revenue by upgrading the dominant position of cordless vacuum cleaner and at the beginning of the year, we have first ever launched the Ninja series products in Japan. So the success achieved by the full processing products [indiscernible] by relying on the superior posturing propaganda and laying a channel foundation and accumulated experience for launching more kitchen appliances. So the market in Australia, New Zealand and South Korea have also performed brilliantly and achieved considerable growth in more categories which accumulate experiences for the subsequent categories and the products. In terms of regional expansion, we cooperate with well-known local distributors and formally entered Indonesia, Philippines and Thailand through exclusive distribution agreements. We expect that in these regions we will also formally enter all kinds of channels in 2025 and start the layout of SharkNinja brand products in Southeast Asia. With the gradual growth of SN APAC, we believe the SN APAC will also maintain steady growth in the next few years and make continuous contribution to group's performance. Next, I would like to invite two colleagues to introduce the 2024 financial performance and the business update. Thank you.

Okay. So good morning. And we also can see that for 2024 the overall financial performance was gradually in line with the expectations of the company's management. Of course, there are also some bright spots and areas that needed improvement. In 2024, the company's income from continuous operation was USD 1.59 billion, up by 11.5% Y-o-Y. Excluding procurement services, the adjustment business revenue was USD 1.36 billion, Y-o-Y increase of 13.1%. Company's gross margin in 2024 was USD 510 million, up 4.7% Y-o-Y. Excluding procurement services, the adjusted gross profit in 2024 was about USD 460 million, while the adjusted gross margin rate was 34%, up by 1.5%. So the company's net profit declined significantly in 2024, mainly due to the decline in the performance of Joyoung and the continuous investment of SN APAC in exploring the market. In terms of different departments, our business income consists of SN and Joyoung -- SN APAC and Joyoung. So the revenues of SN APAC has increased from 12.6% in the same period of last year to 25.1% in 2024, which improved the regional structure of JS Global revenue has been improved. So from the kinetic energy point of view, the proportion is expected to continue to rise. SN Asia Pacific increased from USD 152 million in the same period of last year to USD 342 million, which needs to remind that in the same period of 2023, SN APAC sales were mainly in the Japanese market and the other markets were consolidated one after another after the dealer acquisition in April and the split off in July and its Y-o-Y phase was not yet complete until then. So the revenue of Joyoung decreased slightly by about 3% Y-o-Y, mainly due to the fierce competition in the domestic market and the continuous weak performance of the overall small household appliances. And our water purifier, cooker and other cooking products in Joyoung declined and which offset our growth in core categories such as soy milk machines and the cleaning products. In terms of gross margin, excluding procurement services, we have already mentioned that the overall adjusted gross margin was 34%, up by 1.5%. So this change is mainly due to the introduction of high-end products with a higher gross margin and the implementation of strong product cost optimization in APAC, which offsets the small decline of Joyoung. And the growth of adjusted gross margin mainly increases with the growth of total revenue of SN APAC and the growth of overall gross margin has also driven the growth of the gross profit as a whole. So in terms of operating cycle, the inventory turnover days of continuous business declined from 51 days to 46 days, which is mainly because SN APAC revenue increased significantly this year and the increase rate exceeded the increase of inventory balance, so which led to the decrease of the overall inventory turnover days. Accounts receivable and payable turnover decreased from 93 days to 90 days. The decrease was mainly due to the increase in the proportion of bill receivables transferred to suppliers by endorsement received this year, so which has led to the decrease of the balance of the receivable, thus reducing the overall turnover days. So the turnover days of accounts payable and bills decreased from 202 days to 168 days, mainly because the portion of the business of Joyoung in JS with relatively high accounting period also declined. And in terms of capital expenditure and debt structure, the capital expenditure of continuous operation this year is about USD 27 million, which is mainly due to the lease right assets and the capitalization expense brought by the relocation of new offices due to the increase in the number of teams in Asia Pacific countries and the increasing investment in marketing-related assets such as exhibition expense. By December 31, 2024, the company had withdrawn an operating revolving loan of USD 15 million at the end of last year to supplement the liquidity of SN APAC business. By the end of 2024, the debt-to-equity ratio was also very small, only 0.05x. So that's the end for me. Now I would like to invite Mars to briefly introduce the business development of the company.

Thank you, Leon. Hello, I will briefly introduce the upgrade of different businesses this year. Joyoung in mid and late April has already held this product launch conference of science and technology Series 3.0. So it has led to the small home appliance of 3.0 to be launched. And in 2024, we have also launched a new series of cleaning products. In 2024 as a whole, Joyoung managed also solid performance of core categories in the retail market. However, due to the overoptimistic judgment of the consumption environment at the beginning of the year, Joyoung invested heavily, but we failed to achieve the expected results. From 2025, Joyoung will also focus on the entry-level products and adopt the K-type product matrix focusing on mid- and high end and entry-level products, improve the scale and profit margin of core kitchen appliances, improve quality and efficiency and implement the cost assessment of the whole link so that's the overall idea of Joyoung. So from the product perspective, in 2024, Joyoung grew against the trend of difficulty like soy milk blender and blender outperforming the broader market. We also have got this nonzero coated rice cooker and different categories like boiling extraction kettle and washing machine as well as small capacity frequency conversion and light noise. We also have this water appliances like the ordinary RO, and we also plan to provide more exclusive products for the e-commerce channels. So that's the analysis from the product perspective. So for 2024, we pay attention to three different aspects. The first one is to promote our direct sales team and the steady development of online development. So this will facilitate our gross margin. The second is strengthen the sales of terminals and pay attention to improve the customers' experiences. The third is to adhere to the principle of live broadcasting by our own channel and support vigorous development and e-commerce in live streaming and content e-commerce channels. This year, we also will strengthen the management of offline consoles in the offline stores and optimize the layout of online channel and improve the content e-commerce as our focus. Next, we will also update the SN APAC. In 2024, our group has helped this APAC to establish a more complete functional system and optimize the infrastructure, empower the APAC branch to accelerate the launch of the new products and categories in the business side and gain more market share by expanding market activities. We also can see from this chart, in 2023, SN APAC total revenue from sales to third parties was $152 million. And by 2024, it has increased significantly to $342 million, up 125%. At a fixed rate, it is $349 million. It reflects a strong growth momentum. So from the perspective of regional composition, the biggest contribution to revenue was Australia and New Zealand and accounting for 43% and increased by over 200% Y-o-Y, followed by Japan accounting for 32.7%, achieving a steady growth of about 30% under the fixed exchange rate. And then proportion of South Korea business increased significantly as well from 8.4% of last year to this year's 20.6% while other regions accounted for 3.7%. So these regions are mainly Malaysia and Singapore. In the past year, SN has successfully diversified the regional revenue, especially in Australia, New Zealand and South Korea, which show our ability of operating in different markets. Next, I will briefly share the business updates of our different lines. And we also can see we not only have increased our overall floorcare market share, and we also have expanded our market and especially about wireless vacuum cleaner, we have already got this Neo+ and the Neo Power. It has already got this cordless vacuum cleaner. It combines the lighter weight, stronger suction and smarter technology to improve the consumer experience. After this launch, it has quickly been recognized by the market, which has helped us to the second place in 2024 of the market share in Japanese market as a second, further narrow the gap with our top competitors. With this momentum, we have also further broken this boundary of the category and has brought Ninja brand into Japanese market for the first time, which is a very important milestone in our development. And so we have introduced the portable blender of Ninja Blast and we can provide services to consumers now with higher efficiency and more modernized development. And after the launch of this product, the performance is very good. And in the first year after its launch, it has taken the #1 in market share in this blender category in Japan. Japan's sustainable and steady growth not only demonstrates our strength in product innovation, but also reflects our in-depth research and understanding of the consumer needs and have a strong execution capabilities. And next, let's take a look at the Australia market and 2024 is a milestone for us and we have drive further great growth with a series of product launch. And in food preparation and air fryer, Ninja brand continue to make great performance, and we have taken a third place in food processing and #2 in air fryer category. And in the past 2 years, our businesses in both categories have achieved great performance due to the launch of several key innovative products such as Ninja Blast portable blender and Ninja FlexDrawer air fryer. And in floor cleaning and hair care categories, Shark brand also performed well with the vacuum cleaner market share increasing from 3% last year to 11% this year. And in beauty or hair care category, we improved from only 4% to 13% this year. And both categories has taken #2 in market share in Australia. And despite of all these achievements, we can clearly see from this slide that there is still a big gap between us and the first place in the market and which requires our continuous efforts. So for South Korea, it was the first year after the SN APAC restructure. And as one of the most dynamic and competitive markets in APAC, also we have quickly established brand influence through localized products and integrated marketing. The launch of Ninja Blast portable blender was very successful. With nationwide media placement and digital marketing, we have quickly taken a lead in this category. Despite the impact of low-priced competition products in the second half of the year, we continue to maintain our leading position among mainstream brands with innovation and higher value. In floorcare, we introduced the Shark EVOPOWER SYSTEM Neo cordless vacuum cleaner that was successful in the Japanese market and our market share increased from 1% to 5% in South Korea. And our goal for the future is to catch up with the market share of the industry's leading brands. So overall, the initial results in South Korea market have demonstrated our adaptability and execution in accessing the new markets. And we will continuously expand our brand exposure, diversify our product lines and drive long-term growth with innovation. And let's take a look at the new products that are going to be launched in APAC. So these are part of them. First, Ninja SLUSHi, which allows consumers to enjoy professional grade smoothie and sorbet at home, and we have prepared some videos. [Presentation]

Next, we have the Ninja Blast Max, a new upgraded portable blender that delivers more power for [indiscernible]. There is a brief introduction sort of video as well. [Presentation]

We also have Shark EVOPOWER SYSTEM, new product. It was launched in Japan already and it has a stronger suction and long lasting batteries, quieter operation. And finally, there is Shark FlexBreeze fan. It will be officially kicking off our expansion into the electric fan category. This is a powerful detachable fan that combines corded and cordless usage, combining performance and flexibility and is suitable for both indoor and outdoor use. So I believe that the launch of all these products will continue to diversify our brand portfolio and to assist the higher growth in APAC. And next, let's take a look at the new market we're going to expand in 2025. As consumers in Taiwan pursue a higher quality of life, the demand for high-quality small appliances continue to rise. So we will access the Taiwan market and the rapid growth of local e-commerce has also provided us with excellent online sales opportunities, helping us to reach a wider consumer group and further expand the potential of digital channels. And in Southeast Asia, most of those countries are still at a low penetration stage in the field of small home appliances, which provides us with huge growth space for innovative products. With the rapid growth of the middle class, the accelerated urbanization and the increase in disposable income, the demand for small home appliances is expected to continue to grow, helping us to achieve the long-term sustainable growth. According to the current product categories already launched in SN APAC, the market size in China, Taiwan is close to USD 1 billion and the market size in Southeast Asia is over USD 2 billion. So this is based on the categories that we already have launched. Finally, I would like to share with you our efforts in ESG. We are committed to the long-term sustainable development of business and community. In 2024, the complaint resolution rate of products and services reached 100%. We attach great importance to quality management and compliance of suppliers. SN APAC requires all suppliers to pass third-party audits and receive regular training. Joyoung requires all core suppliers to obtain ISO 9001 certification. In terms of environmental protection, we have established a special refurbishment factory to handle returned products and promote resource recycling. Our self-built photovoltaic power generation capacity is close to 3.6 million kWh and the self-sufficiency rate is 86%. In social welfare, our Joyoung Charity Kitchen project has built 1,617 kitchens, of which 133 were newly built this year, protecting the healthy growth of more than 600,000 Chinese children. The Food and Education Workshop project has built 306 workshops with 52 new ones this year. And the towards the sun (sic) [ Born to the Sun ] project has supported a total of 187 people time. In terms of employee support, we have an equally good job. We cover training at different levels in multiple fields, providing 32 full-time position for people with disabilities and have no work-related fatality for 6 consecutive years. And our efforts in ESG has been widely recognized by the rating organizations in Hong Kong and the world. And this is the end for the prepared remarks, and now we will have the Q&A session.

[Operator Instructions] So while we are waiting for the questions, well, I have seen some of the questions already being raised on Zoom. So I will read the questions first. The first question. I don't see the name. I know that the direct marketing and the distributor marketing in different countries are executed in different ways. So what are the sequence of the market? And for the distributor market, do they access the market first? And in the longer run, for SN APAC, do we pursue the direct sales in those market or not? And I'd like to refer this question to Leon, our COO. Thank you.

All right. Thank you, Mars. And as for this question, direct sales and distributor, the difference is that our business model is that in a country or a region, we will establish our own operation team, including sales, marketing, operation, IT and finance for the direct sales. And all of these major functions will be established. So this is a full function entity in the local market. And then we will face directly towards our terminal users and the retailers. However, in the distributor model, we will sell the products to the local distributors. And then through them, we access the users. So they are mainly responsible for the sales and in some of the regions, such as South Korea, we will establish our own sales team to assist the distributors to have a better branding, grow the brand awareness. So this is something that we are able to control. So these are very -- 2 very different management models or operation models. So just now, you asked about whether this strategy is first access to market is through the distributors and in the end, contacted a darker cells. So in different countries and the regions, we can see different conditions and no matter which method we select is based on several considerations, verifications and a reference from the peers is on historical record. And based on the characteristics of different countries and the regions will make the decision and also there's the capabilities of the local distributors and the resources and channels we have and the legal and policy environment, et cetera. So we will consider all these different factors to decide which way we will adopt to access the market.

Okay. Thank you, Leon, for the answer. Next, let's continue to raise the questions.

So I have seen that as in APAC in the past year had achieved a great result and grow very quickly. And I have several questions to ask the management. The first is that in Australia, New Zealand and South Korea in 2024, they had been growing very quickly. So can you break it down to different reasons for such growth? And also, I'd like to ask the management in South Korea, Australia -- South Korea and New Zealand, this kind of success model can be rolled out to the other regions? All right. This is my first question, and I'd like to ask Leon to answer your first question.

Okay. Thank you very much for your question, [indiscernible]. In Australia and New Zealand, I believe that you already know that this is very different from Western -- so this is very close to Europe and America. Their lifestyles are very similar, and they also use a similar social media like TikTok. So when we have launched the new products in Europe and America, the Australian and New Zealand market will also be influenced. I should not say that it's easy to access Australia and New Zealand market, but I would say that the consumer base is very good, and we already have a foundation there and if the product can be successful in Europe and America, we have the confidence that they will also be successful in Australia and New Zealand, and this is about the growth in Australia and New Zealand. And as for the South Korea, we had changed a distributor and a small home appliance this distributor has long-time experience. So, in China expansion, and in your communication with the retailers, it has been doing very well. Therefore, in 2023, we have switched to this dealer. And afterwards, we have more development in the end-to-end channel distributions, including online and off-line distribution. We know [indiscernible] investors have already seen this entertainment is more like a social media promotion, like a black and white clip, black and white [indiscernible]. When it's your translation and not on the 2 markets, we still think that it is actually having a possibility to copy the success but I have already mentioned the biggest advantage of Australia and New Zealand is for their cultural recognition and consumer consumption habits are actually quite close to the Western world. So essentially looking at APAC, these are the only 2 countries, but I like that. And for South Korea for this East Ocean countries, we still have some similarities, for example, like Japan and maybe for our Ninja products, it is also like a [indiscernible] reference for Southeast Asian countries from a culture recognition and the culture and for this pop culture in Japan and South Korea, including the products. They also have certain recognitions. And we also hope that in the future for the market expansion, we could refer to the experiences of South Korea to promote that in Southeast Asia as well.

And I would like to ask the second question. For the entirety as global for 2025, what is the major driving force of development in 2025. Can you share with us?