J.P. 摩根-美股-电力设备行业-美国电力设备与多产业：为什么不是IR？-2019.7-30页 (2).pdf

1US Electrical Equipment&Multi IndustryWhy Not IR?Standalone IR ClimateCo Should Re-rate Towards LII MultipleSee the end pages of this presentation for analyst certification and important disclosures,including non-US analyst disclosures.J.P.Morgan does and seeks to do business with companies covered in its research reports.As a result,investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report.Investors should consider this report as only a single factor in making their investment decision.North America Equity ResearchJuly 2019Steve Tusa,CFAAC212-266-J.P.Morgan Securities LLCPatrick Baumann212-622-J.P.Morgan Securities LLCNicole Cai212-622-J.P.Morgan Securities LLC22019 HVAC Annual Report Summary:The Golden Age Of HVACHVAC fundamentals in the midst of golden era:demand solid,supply rational,kept that way by a regulatory regime that is enough to favor those with technology differentiation but not dramatic enough to disrupt.Late in cycle,but premature to call peak:investors are nervous about cycle timing,but we continue to believe that what broke last cycle(US housing/construction)will not break this cycle as the core fundamentals remain solid.Structure sound:Industry players mostly restructured in the great housing recession,and they are now well positioned with a structurally higher industry entitlement in margins,managing somewhat successfully through another period of price/cost hysteria,coming out the other end set to benefit from stabilization in inputs,and with the focus shifting to new product introductions.Consolidation would be next leg:Unprecedented movement in industry structure stoking speculation of consolidation,which,if it happened,should result in the next leg of efficiency and higher returns.The related melt-up dynamic here is reflected in the multiple of LII,the res-focused pure play that has re-rated 55%since the last cycle,setting the aspirational benchmark for a high quality pure play.Top pick is IR:under-appreciated franchise quality as reflected in best in class organic profit growth on market share gains and margin upside in commercial HVAC,raising PT,showing 17%upside versus sector at 13%.Upgrading JCI to N:de-rated and fundamentals more stable now.Downgrading LII to UW:valuation should recouple to the standing sector average,as the Tornado pass turns into an execution hurdle and dance floor for consolidation gets crowded,hurting scarcity value premium.OW UTX and EMR:HVAC is an aspect of the thesis but not the driver.UW WSO:valuation and what we see as structural growth challenges.32019 HVAC Annual Report SummaryUS Resi Steady As She GoesWhile we are close to normal,and the cycle is on watch,indicators point to another year of at least MSD growth in units(pending weather).Housing and the US consumer are fundamentally sound today,either still below trend or in good shape from a balance sheet perspective,while lower rates are a reinforcing factor.If its broke,the consumer will replace it.Replacement rates are now at the high end of the historical range,and after several years of trending above actual replacement,these lines have converged further supporting the notion we are at“normal.”The housing echo-boom is a good thesis for further upside,though with most of these units in hotter regions,the call on useful life is tougher,and we may be seeing of this demand already.Commercial Market SolidWhile traditionally a bit more lumpy/cyclical in nature and more exposed to business confidence than residential HVAC,cycle timing remains favorable.With a material part of the market institutional,which lags the broader economy,activity still remains below trend line here.Most players have pressed hard to establish a greater share in value added services which should blunt the impact of the cycle,and limit the potential for an 08/09 type of cyclical event.China is a watch item,but currently well below entitlement;with a combined share of 9%,the Big 3 MNCs seem to have potential to take market share as government planners drive to high grade their building stock with a focus on efficiency.JPM Index Implied Replacement versus Actual ReplacementSource:AHRI,Thomson Reuters University of Michigan,BLS,NAR,J.P.Morgan estimates.42019 HVAC Annual Report Summary(Cont)Industry structure soundThe significant footprint restructuring undertaken during the great recession has set the industry up well for this cycle.Price has been surprisingly disciplined in the face of unprecedented volatility in raw materials.Only modest share shifts over this time period reinforces the fact that the moderate increases in technologies have provided an umbrella for everyone to improve margins as volumes grow,in a favorable current market structure.Consolidation would drive next legScale will remain a key advantage as technology continues to evolve,allowing larger players to leverage investments to stay aheadPotential outcomes on combinations could make the industry structure even better.All 3 HVAC conglomerates have essentially split up to be pure plays now,so consolidation is a rampant topic,with most players saying they would be ready to participate in it,given the right synergies,but are also comfortable where they are.By the numbers,IR/JCI makes the most sense.4%6%8%10%12%14%16%18%200720082009201020112012201320142015201620172018SectorHVAC PlayersHistorical Operating Margins HVAC Players vs SectorSource:Company reportsMarket ShareUSResiLargeComml LightCommlCash ROIC/Share Price AccretionShared Upside FromOperational SynergiesCarrier/LII43%38%7%cash ROIC for Carrier/10%upside for LIIn/aCarrier/JCI Merger32%28%35%10-15%upside for Carrier$1+B,2%of combined market cap JCI/LII23%22%8%cash ROIC for JCI/10%upside for LIIn/aJCI/Trane Merger24%31%34%30%upside for IR20%.Less appreciated is Resi/Comml Unitary strengthWe believe that EBITDA margins for both residential and commercial unitary are close to 20%and Applied/Services relative weakness.The above implies the large commercial franchise is in the low DD range.Mix explains much of the discrepancy between HVAC players(LII premium at 20-30%with residential/commlunitary,JCI laggard at 0-5%discount with large applied).16%17%22%10%+0%5%10%15%20%25%IR ClimateLIIUTX CCSJCI BuildingsIR Climate EBITDA Margins vs PeersSource:Company reports,J.P.Morgan estimates18%18%12%22%10%12%14%16%18%20%22%24%ResiComml unitaryLarge Comml/servicesTK/refrigeration12Source:AHRI,Company reportsSource:Company reportsTrane Resi Quarterly Growth vs Peer Average vs AHRITrane Resi Quarterly Growth vs PeersIR Climate:Best In Class HVAC Player,TK Kicker(Cont.)Trane Residential HVAC(20%of ClimateCo)Trane Resi has consistently performed in line or better than peer average over the last three years,and has on average outperformed AHRI(+10%over the last three years,vs AHRI+7%)-5.0%0.0%5.0%10.0%15.0%20.0%1Q172Q173Q174Q171Q182Q183Q184Q181Q192-YrAvgTrane ResiAHRIAverage-10.0%-5.0%0.0%5.0%10.0%15.0%20.0%25.0%1Q162Q163Q164Q161Q172Q173Q174Q171Q182Q183Q184Q181Q19Trane ResiCarrier US ResiLennox ResiGoodman NA Resi95%115%135%155%175%195%2009201020112012201320142015201620172018WSO equipment SSSLII Resi HVAC OrganicTrane Resi HVACJPM Industry ProxyCarrier(approximate)Indexed JPM Industry Revenue Growth Versus Public Players Resi Growth2009=100%Source:Company reports,J.P.Morgan estimatesAlthough Trane Resi started slow,it is now catching up,and estimate an 18%share,positioned just below leaders Carrier and Daikin/Goodman.13Source:Company reports,J.P.Morgan estimates,ACT ResearchThermoKing Sales Growth vs Class 8 SalesIR Climate:Best In Class HVAC Player,TK Kicker(Cont.)Thermo King(19%of ClimateCo)TK is a“controversial”asset:high margins and strong cash generation,but historically cyclical,and debates on value go as low as“truck stock”valuation.TK has grown 5%CAGR over the past 6 years,2%above Class 8.Initiatives such as APU($300 mm+today,prior target had been$200 mm by 2020)have been a key differentiator,along with a more diversified global skew and the secular“cold chain”trend.All in,with 20%+margins and MSD growth through a cycle,this is a solid asset in the context of global capital goods.-30%-20%-10%0%10%20%30%4Q121Q132Q133Q134Q131Q142Q143Q144Q141Q152Q153Q154Q151Q162Q163Q164Q161Q172Q173Q174Q171Q182Q183Q184Q18Thermo King 4-quarter rolling averageClass 8 Retail SalesSource:Company reports,J.P.Morgan estimates,ACT ResearchTK vs Class 8 Sales 2012-2018 CAGR5%3%0%1%2%3%4%5%6%TKClass 8-30%-20%-10%0%10%20%30%201320142015201620172018TKClass 814Source:Company reports,J.P.Morgan estimatesSource:Company reports,J.P.Morgan estimatesTrane CommlSales Growth vs PeersTrane CommlOrders Growth vs PeersIR Climate:Best In Class HVAC Player,TK Kicker(Cont.)Trane Commercial HVAC(60%of ClimateCo)Trane Comml HVAC has generally outgrown peers but mix of portfolios always a factor,Trane is diversified enough to make comparison to others appropriate.Commercial needs to be looked at in 3 separate buckets:Commercial Unitary($1.2B,US centric),Applied Equipment($2.5B,more global),and Parts,Services and Controls($3.4B,also global,more related to Applied applications).Trane is a leader on both fronts,with 30-40%market share in NA,less in a more fragmented global market.Services are an under-appreciated aspect of the story,50%of the total“Applied”franchise after having compounded at a 6-7%rate over the past 8 years.The$3.4 B of revenues has a material portion from controls($500 mm,though bigger on an embedded basis).While still a developing story,we think low DD margins can be mid-teens as services/controls content increases,as management executes on restructured footprint.Stay tuned for more color here from management as the marketing of“new ClimateCoensues.-15%-10%-5%0%5%10%15%20%25%1Q103Q101Q113Q111Q123Q121Q133Q131Q143Q141Q153Q151Q163Q161Q173Q171Q183Q181Q19JCI Building Efficiency OrdersCarrier Comml Equip OrdersTrane Comml Equipment Orders-5.0%0.0%5.0%10.0%15.0%1Q152Q153Q154Q151Q162Q163Q164Q161Q172Q173Q174Q171Q182Q183Q184Q181Q19LII Commercial organic revsCarrier Comml RevsTrane Comml Equipment15Comparison grid shows that,while having differing exposures,profile by the numbers is similarIR Climate compares relatively well to LII on the basis of several financial metrics(EBITDA margin,gross margin,FCF conversion,capital intensity and leverage).The LII vs IR Climate comparison shows a similar sized resi business,a more heavily weighted comml unitary business at IR with larger market share,while Trane also plays in large comml while LII doesnt.Refrigeration larger at IR and better business but,like Applied/Services/Controls not comparable on a like for like basis.IR V LIIIR vs LII Comparison By The NumbersIR ClimateLIIRevenues12,3443,665Gross margin31%29%EBITDA margin(adj for amort)16%17%FCF conversion/target100%105%FCF margin(6 yr avg)7%7%Leverage0.8x1.6xCapex%of sales(3 yr avg)1.7%2.5%Source:Company reports,J.P.Morgan estimates.Note:Leverage is post debt paydown from deal proceeds.IR Climate vs LII Financial MetricsSource:Company reports,J.P.Morgan estimates.IR Climate vs LII Segment ComparisonsIR ClimateLIIRevenues123443665Resi24072225Comml unitary1653901Large Comml5908TK/refrigeration2376539EBITDA margin(adj for amort)16%17%Resi18%19%Comml unitary18%16%Large Comml12%TK/refrigeration22%12%Market ShareResi NA18%17%NA Comml unitary25%13%Large Comml16%HVAC Equipment8%4%16Source:Company reports,J.P.Morgan estimatesSource:Company reports,J.P.Morgan estimatesResi Quarterly Growth Trane vs LennoxComml Quarterly Growth Trane vs LennoxIR V LII(Cont)IR vs LII Portfolio Performance ComparisonResi HVAC:Trane and Lennox have generally trended together,though after underperforming in 2013,Trane seems to have regained the upper hand in the last two years.Tornado recovery will be key but these are comparable assets.Comml HVAC:growth about in line in Commercial HVAC,though there are major differences between the two businesses,which we discuss in more detail below big difference is that LII is all unitary.Trane proved to be more resilient through the 08-09 downturn Trane has the edge on scale in unitary,Applied/Services not comparable but potentially more stable all in.ThermoKing vs LII Refrigeration Sales GrowthSource:Company reports,J.P.Morgan estimates-40%-30%-20%-10%0%10%20%30%1Q073Q071Q083Q081Q093Q091Q103Q101Q113Q111Q123Q121Q133Q131Q143Q141Q153Q151Q163Q161Q173Q171Q183Q181Q19Trane ResiLennox Resi-40%-30%-20%-10%0%10%20%2Q084Q082Q094Q092Q104Q102Q114Q112Q124Q122Q134Q132Q144Q142Q154Q152Q164Q162Q174Q172Q184Q18Trane Comml EquipmentLII Commercial organic revsTransport/Refrigeration:TK has averaged 6%growth over the last 8 years in our estimates,vs LII Refrigeration 1%.Comparison is less applicable as LII refrigeration is only 10%of EBITDA,vs TK an estimated 25%.TK a better asset,but materially larger,which is,on net,likely a drag on value given cyclicality.-20%-10%0%10%20%30%1Q112Q113Q114Q111Q122Q123Q124Q121Q132Q133Q134Q131Q142Q143Q144Q141Q152Q153Q154Q151Q162Q163Q164Q161Q172Q173Q174Q171Q182Q183Q184Q18Thermo KingLII Refrigeration organic17IR V LII(Cont.)Valuation:Implied ClimateCo at 12x EBITDA V LII at 17xSOTP reality:using GDI market value suggests IR ClimateCo at 11.8x EBITDA To determine the current price/share for IR ClimateCo,we take the GDI market cap to determine IRs share which is essentially almost a mirror image put over IRs share count to get to$30/share,which we back out of the stock price to get to$95/share ofimplied IR ClimateCo valueThis is an implied EV/EBITDA for IR ClimateCo on 2020 numbers of 11.8x V LII at 17xGDI share price35GDI shares outstanding(millions)208GDI market cap(billions)7.2IR share price125IR shares outstanding(millions)242IR IndustrialCo value per share30Implied IR ClimateCo value per share95IR ClimateCo Market Cap(billions)23.1PF Net Debt,2019 end(billions)2.4ClimateCo EV(billions)25.52020E IR ClimateCo EBITDA(JPMe)2.2EV/EBITDA11.8xBacking Into IR ClimateCo ValuationSource:Company reports,J.P.Morgan estimates18IR Industrial vs IR ClimateCo ValuationIR V LII(Cont.)Valuation:Re-creating LII Within in IR Suggests 20%Upside For IR ClimateCo1/3 of IRs EBITDA is directly comparable to LII,and we“re-create”LII within IR ClimateCo.We apply LIIs 17x EV/EBITDA to IRs Resi,Commlunitary,conservative as lower multiple refrigeration asset(recent deals at 0.5x sales)suggest core HVAC 18,and an EE/MI sector multiple to TKand back into an implied multiple of 6.2x for IRs Applied/Services business,fundamentally mispriced.This compares to JCI at 11x,the closest peer when it comes to heavy commercial/services weighting though with recent top line outperformance and similar margin upside,we think a 10%premium is warranted,which suggests an all in fair value for IR ClimateCo of 14.0 x EBITDA,or$115 per share.Source:Company reports,J.P.Morgan estimatesImplied EV/EBITDA Multiple for IR CommlApplied/Svc vs JCI MultipleSource:Company reports,J.P.Morgan estimatesIR Share price125Share count(millions),2019 end242M