Sector financial performance:

This company, which is primarily a manufacturer and marketer of HAVC products, has been grouped into household appliance sector in household equipment industry.

It seems that there has been a strong growth in demand from US market for residential and commercial heating and cooling products in the past several years. This has been reflected by the sale volume increase as indicated by the data of the typical company in this sector, which presents a more than 5% annual growth in sales volume during the same period and it seems that the growth is accelerating in 2018. Sales have also benefited from rising selling price due to product mix’s shifting.

As a result of lower products costs (material costs) and increased sales and rising average selling price, the typical companies’ gross margin has gone up to about 29% in 2018 and the typical operating margin up to about 13% with a SG&A as percentage of sales of about 16% in 2018.

The typical average enterprise price/EBI ratio is: 29(interest/EBI ratio of 9%) and stock price/sales ratio is about 2.3.

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Company performance:

It seems that the demand for products of this company in the past several years has been strong and growing fast driven by increasing demand for replacement of residential and commercial heating and cooling products (more than 5% organic growth in sales volume and the growth accelerated in 2018).  Sales have also benefited from rising selling price due to product mix’s shifting.

The first six months of 2018 compared with 2017

Sales (excluding currency) increased 6% (9% for 2Q) primarily due to increase of 5% (8% for 2Q) in sales volume of residential and commercial heating and cooling (replacement mainly) and increase of 1% (1% for 2Q) in price.

The 2017 compared with 2016

Sales (excluding currency) increased 5% primarily due to increase in sales volume of residential and commercial heating and cooling.

2016 compared with 2015

Sales (excluding currency) increased 5% primarily due to increase of 5% in sales volume company wide.

Fiscal 2015 compared with 2014

Sales (excluding currency) increased 7% primarily due to increase of 6% in sales volume of residential and commercial heating and cooling and increase of 1% in price/mix.

Its gross margin has increased from around 27% in 2014 up to about 29% of 2018 due to lower material costs. With the flat SG&A as percentage of sales (around 16%), its operating margin thus went up to about 13% in 2018.

Stock price

This stock currently has a stock price/cash flow ratio of 28 ($224). We think that its stock is being relatively undervalued compared with its peers.