Taiwan Consumer Discretionary 25 May 2023

Giant Manufacturing (9921 TT)

Target price: TWD205.00 (from TWD160.00)

Share price (25 May): TWD199.00 | Up/downside: +3.0%

Upgrading: spring may come late

Helen Chien
 Improving inventory digestion in EU since March 2023 (886) 2 8758 6254
helen.chien@daiwacm-cathay.com.tw

 China demand remains strong; US likely needs more time for inventory Jack Wang
(886) 2 8758 6256
 Upgrading to Hold (3) from Underperform (4); new 12M TP of TWD205 jack.wang@daiwacm-cathay.com.tw

What’s new: We hosted Giant’s 1Q23 post-results call on 25 May after it Forecast revisions (%)
posted 1Q23 results (see our flash, 10 May). Giant aims to lower inventory, Year to 31 Dec 23E 24E 25E
Revenue change 0.7 1.6 2.5
and expects it to improve in 2H23 and revert to a healthy level in 1H24. We Net profit change (1.0) 6.5 7.0
upgrade Giant to Hold (3) from Underperform (4), as we believe the worst Core EPS (FD) change (1.8) 5.6 6.2
is likely over on top of low expectations from investors and likely inventory Source: Daiwa forecasts
improvement in 2H23.

What’s the impact: Inventory update. Inventory for mid- to low-end bikes
was 8 months in the US (19% of 1Q23 revenue) and 5 months in the EU
(37% of 1Q23 revenue). Inventory for high-end bikes in the US and EU
markets was 4 months. In the EU, Giant has seen some inventory
improvement since March, and expects levels to revert to 4-5 months in
2H23 for mid- to low-end bikes and further reduce to 2-3 months in 2024. In
the US, the inventory issue was relatively worse on overstocking from
social distancing issues post the pandemic. However, Giant plans to offer
price discounts to clear inventory. In China (19% of 1Q23 revenue), Giant 12-month range 169.50-262.95
Market cap (USDbn) 2.42
sees rising outdoor activities post pandemic, and expects revenue growth 3m avg daily turnover (USDm) 12.07
of 10-20% YoY in 2023, with momentum carried forward to 2024 from the Shares outstanding (m) 375
bike upgrade trend. Major shareholder Founder group (35.0%)
2023 outlook. Though Giant maintains its conservative guidance for 2023
(revenue to decline mid- to high-teens YoY, gross margin of 20-21% and Financial summary (TWD)
Year to 31 Dec 23E 24E 25E
operating margin of 7%), the company sees some upside from e-bike
Revenue (m) 79,795 85,322 91,505
(better product mix) and China revenue. Over 2Q-3Q23, Giant is likely to Operating profit (m) 5,825 6,740 7,412
offer price discounts to clear inventory, which may negatively impact its Net profit (m) 3,653 4,840 5,324
gross margin (vs. 21.9% in 1Q23) in addition to other issues including lower Core EPS (fully-diluted) 8.946 11.855 13.039
EPS change (%) (40.7) 32.5 10.0
utilisation rate. However, Giant aims for 24-25% gross margin in the next 5 Daiwa vs Cons. EPS (%) (11.9) (7.5) (8.7)
years due to rising e-bike revenue, ie, 40-50% of total revenue in the next 3 PER (x) 22.2 16.8 15.3
years, up from 32% in 1Q23, thanks to growing e-bike penetration rates in Dividend yield (%) 2.8 3.7 4.1
DPS 5.6 7.4 8.1
the EU and the US. It guides to maintain its opex to sales ratio of 14% in
PBR (x) 2.0 1.6 1.4
the medium term for brand investment, marketing and R&D. We cut our EV/EBITDA (x) 8.6 7.1 6.0
2023E EPS by 2% on non-op items, but raise our 2024-25E EPS by 6% ROE (%) 10.0 10.9 10.3
from higher revenue and lower profit to minority interests. Source: FactSet, Daiwa forecasts

What we recommend: We upgrade Giant to Hold (3) and raise our TP to

TWD205 (from TWD160), now based on our 1-year forward EPS with
higher target PER of 19x (higher than low-end PER of 17-32x during 2016-
17, which was the down-cycle of the bike sector, and its past-5-year
average PER of 18x) as we believe the worst is likely over and expect to
see some signs of inventory improvement in 2H23. Key upside/downside
risks: faster-/slower-than-expected e-bike penetration in Europe and the
US; lower-/higher-than-expected impact of macro uncertainty on demand.

How we differ: Our 2023-25E EPS are 8-12% below the consensus, as we
are more conservative on Giant’s operating margin.

See important disclosures, including any required research certifications, beginning on page 6
 Giant Manufacturing (9921 TT): 25 May 2023

Giant: revisions to revenue and earnings forecasts

2023E 2024E 2025E
(TWDm) New Previous Change New Previous Change New Previous Change
Sales 79,795 79,219 0.7% 85,322 83,997 1.6% 91,505 89,254 2.5%
Gross profit 16,996 16,874 0.7% 18,344 18,059 1.6% 19,765 19,190 3.0%
Gross-profit margin 21.3% 21.3% 0.0pp 21.5% 21.5% 0.0pp 21.6% 21.5% 0.1pp
Operating profit 5,825 5,783 0.7% 6,740 6,636 1.6% 7,412 7,230 2.5%
Operating-profit margin 7.3% 7.3% 0.0pp 7.9% 7.9% 0.0pp 8.1% 8.1% 0.0pp
Net profit 3,653 3,689 -1.0% 4,840 4,547 6.5% 5,324 4,974 7.0%
Net-profit margin 4.6% 4.7% -0.1pp 5.7% 5.4% 0.3pp 5.8% 5.6% 0.2pp
Diluted EPS (TWD) 8.95 9.11 -1.8% 11.85 11.23 5.6% 13.04 12.28 6.2%
Source: Daiwa forecasts

Giant: 1Q23 results review

(TWDm) Giant’s 1Q23 results Daiwa forecast Differ Bloomberg consensus Differ
Revenue 20,119 17,519 14.8% 18,162 10.8%
Gross profit 4,405 3,416 28.9% 3,630 21.4%
Operating profit 1,690 876 92.9% 1,061 59.3%
Profit before tax 1,525 904 68.6% 1,364 11.8%
Net profit 836 586 42.6% 895 -6.6%
Basic EPS (TWD) 2.13 1.49 42.6% 2.35 -9.2%
Margin
Gross margin 21.9% 19.5% 2.4pp 20.0% 1.9pp
Operating margin 8.4% 5.0% 3.4pp 5.8% 2.6pp
Pre-tax margin 7.6% 5.2% 2.4pp 7.5% 0.1pp
Net margin 4.2% 3.3% 0.8pp 4.9% -0.8pp
Sources: Company, Daiwa forecasts, Bloomberg

Giant: quarterly P&L

2023E 2024E 2023E 2024E 2025E
(TWDm) 1Q23 2Q23E 3Q23E 4Q23E 1Q24E 2Q24E 3Q24E 4Q24E
Revenue 20,119 20,831 20,500 18,344 21,000 22,200 22,500 19,622 79,795 85,322 91,505
Gross profit 4,405 4,270 4,305 4,016 4,410 4,773 4,950 4,211 16,996 18,344 19,765
Operating profit 1,690 1,437 1,538 1,160 1,533 1,798 2,025 1,384 5,825 6,740 7,412
Pre-tax profit 1,525 1,360 1,460 1,083 1,580 1,845 2,072 1,431 5,428 6,926 7,598
Net profit 836 982 1,030 804 1,101 1,292 1,455 993 3,653 4,840 5,324
Basic EPS (TWD) 2.13 2.51 2.63 2.05 2.81 3.29 3.71 2.53 9.32 12.35 13.58
Diluted EPS (TWD) 2.07 2.41 2.52 1.97 2.70 3.16 3.56 2.43 8.95 11.85 13.04
Margin
Gross margin 21.9% 20.5% 21.0% 21.9% 21.0% 21.5% 22.0% 21.5% 21.3% 21.5% 21.6%
Operating margin 8.4% 6.9% 7.5% 6.3% 7.3% 8.1% 9.0% 7.1% 7.3% 7.9% 8.1%
Pre-tax margin 7.6% 6.5% 7.1% 5.9% 7.5% 8.3% 9.2% 7.3% 6.8% 8.1% 8.3%
Net margin 4.2% 4.7% 5.0% 4.4% 5.2% 5.8% 6.5% 5.1% 4.6% 5.7% 5.8%
YoY
Revenue -9.6% -8.4% -20.8% -13.3% 4.4% 6.6% 9.8% 7.0% -13.3% 6.9% 7.2%
Gross profit -13.6% -23.8% -25.5% -7.7% 0.1% 11.8% 15.0% 4.9% -18.4% 7.9% 7.7%
Operating profit -27.3% -34.7% -34.9% 13.0% -9.3% 25.1% 31.7% 19.3% -26.4% 15.7% 10.0%
Pre-tax profit -41.3% -43.2% -50.7% 37.6% 3.6% 35.7% 41.9% 32.1% -37.9% 27.6% 9.7%
Net profit -54.1% -45.5% -48.6% 277.5% 31.7% 31.5% 41.2% 23.5% -37.5% 32.5% 10.0%
QoQ
Revenue -5.0% 3.5% -1.6% -10.5% 14.5% 5.7% 1.4% -12.8%
Gross profit 1.3% -3.0% 0.8% -6.7% 9.8% 8.2% 3.7% -14.9%
Operating profit 64.6% -14.9% 7.0% -24.5% 32.1% 17.3% 12.6% -31.6%
Pre-tax profit 93.7% -10.8% 7.4% -25.8% 45.9% 16.8% 12.3% -30.9%
Net profit 292.4% 17.5% 4.9% -21.9% 36.8% 17.3% 12.6% -31.7%
Source: Company, Daiwa forecasts
Giant: revenue breakdown by region Giant: 1-year forward PER band

100% (TWD)
600
80%
8% 8% 8% 6% 8% 50 0
10% 11% 10%
15% 10% 11% 11% 10% 11%
60% 13% 400
17% 19% 20%
23% 21% 22% 21%
21% 17% 30 0
40% 10% 10% 10%
20 0
20% 34% 36% 37% 39% 37% 36% 33% 34% 35%
100
0% 0
2017 2018 2019 2020 2021 2022 2023E 2024E 2025E May-16 May-17 Ma y-18 Ma y-19 May-20 Ma y-21 Ma y-22 May-23

Europe North America China China- non bike Japan Taiwan Others Share Price 13x 18x
23 x 28 x 33 x
Source: Company, Daiwa forecasts Source: Bloomberg, Daiwa forecasts

2
 Giant Manufacturing (9921 TT): 25 May 2023

Financial summary
Key assumptions
Year to 31 Dec 2018 2019 2020 2021 2022 2023E 2024E 2025E
Sales to Europe YoY (%) 15.5 8.5 15.3 12.6 9.0 (20.0) 10.0 10.0
Sales to North America YoY (%) 19.5 (3.8) 15.4 14.0 (10.0) (50.0) 10.0 10.0
Sales to Asia YoY (%) (2.6) (0.4) 13.9 20.3 34.0 8.4 6.9 7.5
E-bike shipment YoY (%) 102.0 15.2 7.7 15.6 10.8 (2.3) 20.0 20.0

Profit and loss (TWDm)

Year to 31 Dec 2018 2019 2020 2021 2022 2023E 2024E 2025E
Europe 21,686 23,533 27,136 30,567 33,318 26,655 29,320 32,252
North America 13,855 13,324 15,374 17,530 15,777 7,889 8,677 9,545
Other Revenue 24,698 26,592 27,500 33,743 42,948 45,251 47,324 49,708
Total Revenue 60,239 63,450 70,011 81,840 92,044 79,795 85,322 91,505
Other income 0 0 0 0 0 0 0 0
COGS (47,748) (49,793) (53,842) (62,076) (71,220) (62,798) (66,978) (71,740)
SG&A (7,761) (8,051) (8,371) (10,014) (11,378) (9,974) (10,409) (11,164)
Other op.expenses (827) (874) (940) (1,041) (1,532) (1,197) (1,195) (1,190)
Operating profit 3,904 4,732 6,858 8,709 7,914 5,825 6,740 7,412
Net-interest inc./(exp.) (100) 2 21 68 (101) (521) (14) (14)
Assoc/forex/extraord./others 442 75 (46) (49) 924 124 200 200
Pre-tax profit 4,245 4,810 6,833 8,728 8,738 5,428 6,926 7,598
Tax (1,277) (1,215) (1,657) (2,421) (2,561) (1,628) (1,939) (2,127)
Min. int./pref. div./others (105) (220) (227) (377) (333) (147) (147) (147)
Net profit (reported) 2,864 3,375 4,949 5,930 5,844 3,653 4,840 5,324
Net profit (adjusted) 2,864 3,375 4,949 5,930 5,844 3,653 4,840 5,324
EPS (reported)(TWD) 7.636 8.997 13.195 15.811 15.508 9.317 12.346 13.579
EPS (adjusted)(TWD) 7.636 8.997 13.195 15.811 15.508 9.317 12.346 13.579
EPS (adjusted fully-diluted)(TWD) 7.588 8.955 13.117 15.727 15.078 8.946 11.855 13.039
DPS (TWD) 4.600 4.600 8.000 10.000 9.677 5.590 7.408 8.148
EBIT 3,904 4,732 6,858 8,709 7,914 5,825 6,740 7,412
EBITDA 5,224 6,384 8,628 10,656 10,058 7,606 8,591 9,332

Cash flow (TWDm)

Year to 31 Dec 2018 2019 2020 2021 2022 2023E 2024E 2025E
Profit before tax 4,245 4,810 6,833 8,728 8,738 5,428 6,926 7,598
Depreciation and amortisation 1,320 1,652 1,769 1,946 2,144 1,781 1,850 1,920
Tax paid (1,277) (1,215) (1,657) (2,421) (2,561) (1,628) (1,939) (2,127)
Change in working capital (1,602) (3,375) 4,441 (13,259) (7,816) 23,027 1,642 1,396
Other operational CF items 7 66 12 46 7 0 1 1
Cash flow from operations 2,694 1,937 11,398 (4,960) 512 28,607 8,480 8,787
Capex (2,645) (3,358) (2,417) (2,093) (2,472) (1,604) (1,549) (1,549)
Net (acquisitions)/disposals (2,459) (2,722) 1,195 135 1,634 0 0 0
Other investing CF items (219) (279) (235) 205 207 0 0 0
Cash flow from investing (5,323) (6,359) (1,457) (1,752) (631) (1,604) (1,549) (1,549)
Change in debt 2,043 4,517 (5,934) 8,924 1,276 0 0 0
Net share issues/(repurchases) 0 0 0 0 0 0 0 0
Dividends paid (1,313) (1,725) (1,725) (3,001) (3,751) (3,751) (2,192) (2,904)
Other financing CF items 130 185 1,942 (1,149) 7,084 0 0 0
Cash flow from financing 861 2,976 (5,717) 4,775 4,610 (3,751) (2,192) (2,904)
Forex effect/others 0 0 0 0 0 0 0 0
Change in cash (1,768) (1,446) 4,224 (1,937) 4,491 23,252 4,739 4,334
Free cash flow 49 (1,421) 8,980 (7,053) (1,960) 27,003 6,931 7,238
Source: FactSet, Daiwa forecasts

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 Giant Manufacturing (9921 TT): 25 May 2023

Financial summary continued …

Balance sheet (TWDm)
Year to 31 Dec 2018 2019 2020 2021 2022 2023E 2024E 2025E
Cash & short-term investment 8,946 10,492 13,774 10,932 13,968 37,221 41,960 46,294
Inventory 15,554 16,887 18,195 30,872 41,385 20,221 21,567 23,100
Accounts receivable 14,109 14,835 12,604 15,058 17,038 17,929 22,074 23,847
Other current assets 524 421 826 1,200 825 825 825 825
Total current assets 39,133 42,635 45,399 58,062 73,217 76,196 86,427 94,067
Fixed assets 9,183 10,588 11,965 12,182 13,092 12,431 11,581 10,661
Goodwill & intangibles 210 470 454 562 483 483 483 483
Other non-current assets 4,109 5,337 4,684 6,394 6,743 6,743 6,743 6,743
Total assets 52,635 59,030 62,502 77,199 93,535 95,854 105,234 111,954
Short-term debt 13,642 16,953 10,935 19,697 23,112 23,112 23,112 23,112
Accounts payable 12,428 11,802 15,409 18,328 20,875 20,480 21,099 21,804
Other current liabilities 1,120 1,660 1,693 2,425 3,235 3,235 3,235 3,235
Total current liabilities 27,189 30,415 28,038 40,450 47,223 46,828 47,446 48,151
Long-term debt 1,013 2,218 4,241 3,163 6,148 2,390 2,390 2,390
Other non-current liabilities 2,164 2,933 3,262 3,933 4,264 4,264 4,264 4,264
Total liabilities 30,366 35,566 35,541 47,546 57,635 53,482 54,100 54,805
Share capital 3,751 3,751 3,751 3,751 3,921 3,921 3,921 3,921
Reserves/R.E./others 17,055 18,092 21,423 23,725 29,435 35,907 44,669 50,684
Shareholders' equity 20,806 21,843 25,173 27,476 33,356 39,828 48,589 54,605
Minority interests 1,463 1,621 1,788 2,177 2,544 2,544 2,544 2,544
Total equity & liabilities 52,635 59,030 62,502 77,199 93,535 95,854 105,234 111,954
EV 81,810 84,938 77,827 88,743 92,474 65,463 60,724 56,390
Net debt/(cash) 5,709 8,679 1,402 11,928 15,292 (11,719) (16,458) (20,792)
BVPS (TWD) 55.473 58.238 67.117 73.256 88.516 101.585 123.932 139.276

Key ratios (%)

Year to 31 Dec 2018 2019 2020 2021 2022 2023E 2024E 2025E
Sales (YoY) 9.1 5.3 10.3 16.9 12.5 (13.3) 6.9 7.2
EBITDA (YoY) 24.9 22.2 35.1 23.5 (5.6) (24.4) 12.9 8.6
Operating profit (YoY) 32.3 21.2 44.9 27.0 (9.1) (26.4) 15.7 10.0
Net profit (YoY) 39.4 17.8 46.7 19.8 (1.5) (37.5) 32.5 10.0
Core EPS (fully-diluted) (YoY) 39.1 18.0 46.5 19.9 (4.1) (40.7) 32.5 10.0
Gross-profit margin 20.7 21.5 23.1 24.1 22.6 21.3 21.5 21.6
EBITDA margin 8.7 10.1 12.3 13.0 10.9 9.5 10.1 10.2
Operating-profit margin 6.5 7.5 9.8 10.6 8.6 7.3 7.9 8.1
Net profit margin 4.8 5.3 7.1 7.2 6.3 4.6 5.7 5.8
ROAE 14.2 15.8 21.1 22.5 19.2 10.0 10.9 10.3
ROAA 5.7 6.0 8.1 8.5 6.8 3.9 4.8 4.9
ROCE 11.1 11.9 16.2 18.4 13.5 8.8 9.3 9.3
ROIC 10.2 11.8 17.2 18.0 12.1 10.0 14.9 15.0
Net debt to equity 27.4 39.7 5.6 43.4 45.8 n.a. n.a. n.a.
Effective tax rate 30.1 25.3 24.2 27.7 29.3 30.0 28.0 28.0
Accounts receivable (days) 81.2 83.3 71.5 61.7 63.6 80.0 85.6 91.6
Current ratio (x) 1.4 1.4 1.6 1.4 1.6 1.6 1.8 2.0
Net interest cover (x) 38.9 n.a. n.a. n.a. 78.5 11.2 482.4 530.4
Net dividend payout 60.2 51.1 60.6 63.2 62.4 60.0 60.0 60.0
Free cash flow yield 0.1 n.a. 12.0 n.a. n.a. 36.2 9.3 9.7
Source: FactSet, Daiwa forecasts

Company profile

Founded in 1972 and listed in 1994 on Taiwan’s main board, Giant is the largest bicycle maker in
Taiwan, with an annual capacity of c.5m bicycles. In 2022, Europe accounted for 40% of its revenue,
followed by North America (19%) and China (12%). Around 60% of its 2022 revenue came from OBM
(Giant, Liv, momentum) brands, 30% from OEM/ODM (Trek, Scott and Colnago) brands and 10% from
its light alloy business.

4
 Giant Manufacturing (9921 TT): 25 May 2023

ESG analysis
ESG risks
Risks Management Analyst comments
The CEO and Chairperson are not the same individual. Led by the Liu family, there are 11
members on the board. The founder and former Chairman is now a director, with his niece, Mrs.
Executive/board
2 Tu, leading Giant. We view Mrs. Tu's leadership to be strong as she is well recognised by the
quality
former Chairman and the board for her capabilities, and she is one of the few female
chairpersons to lead a Taiwanese company.
G Giant has maintained its dividend payout ratio between 60% and 70% (except for 51% in 2019)
Capital management 2 over the past decade, which we believe to be reasonable considering its global leadership status
and expansion needs.
Related party & Revenue from related-party transactions was 58-62% of total revenue during 2019-21, with sales
2
transaction mostly from its OBM (ASP varies with products/markets). We observed no suspicious activity.
Giant does not yet disclose its CSR progress, but targets to release its ESG report by 2023.
However, as the global OEM/OBM leader in the bicycle industry, we believe product quality and
Product quality &
S 1 safety should be its top priority. We see ongoing R&D expenses and relevant investment in new
safety
models and note that Giant has introduced its "Right Ride" system to assist in customers
seeking suitable bike options.
Giant has developed its Giant production management system that diversifies its capacity
Supply chain globally and utilises production resources fully in order to lower political or regional risk. As Giant
S 1
management has control over its material sourcing, design process and manufacturing/OEM, we believe it has
solid supply chain management capability that allows for better cost control than peers.

Note: Management score represents a company's ability to manage/benefit from certain ESG topics. The scores range from 1 to 3, with 1 being the strongest.
Source: Daiwa

5
 Giant Manufacturing (9921 TT): 25 May 2023

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 Giant Manufacturing (9921 TT): 25 May 2023

Expressions of opinion herein are subject to change without notice. The use of any information, forecasts and opinions contai ned in this report shall be at the sole discretion and risk of the user.
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Disclosure of investment ratings

Rating Percentage of total
Buy* 78.27%
Hold** 17.72%
Sell*** 4.01%
Source: Daiwa
Notes: data is for single-branded Daiwa research in Asia (ex Japan) and correct as of 31 March 2023.
* comprised of Daiwa’s Buy and Outperform ratings.
** comprised of Daiwa’s Hold ratings.
*** comprised of Daiwa’s Underperform and Sell ratings.
Additional information may be available upon request.
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*The amount of the trading commission cannot be stated here in advance because it will be determined between our company and you based on current market conditions and the content of
each transaction etc.

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