|Summary:||SinoPac View: Demand for traditional and electric bicycles has increased during COVID-19 as bicycles are favored by commuters and leisure riders looking to maintain their social distance. With sales outpacing previous expectation, supply chain members have been increasing their UTRs to facilitate inventory restocking, and the increased activity will persist through at least yearend. Taking a longer view, the industry outlook independent of COVID-19 is positive, including increasing penetration of high-end traditional bicycles and electric bicycles.
Our stock picks:
1) Buy Giant (9921 TT), TP raised to NT$336 (27x 2021F P/E): Giant reported record-high JUN sales at NT$7.57bn (+55.11% YoY) thanks to robust sales in the US (+40% YoY), Europe (+140% YoY), and China (+40% YoY), as well as in Japan, South Korea, Australia, etc. Business is brisk for Giantí»s OEM and OBM operations, and its increased UTRs and prolongated lead times and its plants in China and Taiwan has boosted its GM.
2) Buy Merida (9914 TT), TP raised to NT$278 (24x 2021 P/E): JUN sales reached NT$2.93bn (+15.58% YoY) on escalating sales from subsidiaries in China and Europe due to strong end-market demand. For its OBM bike business in China, Merida sold 38K bikes in JUN, bringing 2Q20 unit sales from the country to 120K (+100% YoY). For its E-bike business, Merida shipped 21.8K E-bikes in JUN, shipping 53K E-bikes in 2Q20 overall.
3) Buy KMC (5306 TT), TP raised to NT$210 (20x 2021F P/E): The company posted stellar JUN sales of NT$525mn (+18.86% YoY), bringing 2Q20 sales to some NT$1.4bn. Although motorcycle chain sales declined YoY, bicycle chain sales grew YoY on the back of original equipment (OE) and aftermarket (AM) demand that looks sustainable till yearend, and the company sees a positive outlook for the business next year.