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As the United States enters a cycle of interest rate reductions, positively impacting demand for real estate and other sectors, a subtle shift is evident in the global tools industryFollowing an 18-month period of inventory clearance, major retailers in Europe and America are now reporting low inventory levels, a situation that presents new opportunities for growth and recovery within the sectorNotably, domestic tool manufacturer, Juxing Technology, recently showcased robust performance figures, affirming the validity of the prevailing recovery narrative enveloping the industry.

The state of the global tools industry is primarily influenced by two significant factors: firstly, the trajectory of housing sales in the United States and Europe, and secondly, the levels of channel inventoryOver the past two years, high interest rates in the U.S

combined with aggressive inventory liquidation efforts have placed considerable strain on the industryHowever, with the recent shift towards declining interest rates reviving real estate demand, coupled with the alleviation of channel inventory pressures, the industry appears on the brink of entering a prosperous phase.

Juxing Technology stands as a leaders in the domestic tool sector, with over 90% of its revenue generated from markets in Europe and America, amounting to a market capitalization of approximately 35 billion yuanThe earnings forecast released on September 28 for the first three quarters of 2024 indicates a net profit ranging between 1.883 billion and 2.033 billion yuan, registering a year-on-year increase of 25% to 35%. Furthermore, the company anticipates a third-quarter revenue growth rate exceeding 30%, underscoring the positive momentum within the global tools industry.

The expectation of improvement in the global tools market is anchored in various dynamics, notably the conditions affecting housing in the U.S

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and the inventory fluctuations experienced by retailersHistorically, the relationship between the tools market and the real estate sector has been tenaciousDuring periods of escalating housing sales, the subsequent need for repair and upgrade often drives tools demandThus, it is crucial to observe metrics related to home sales as the market transitions out of a period of low activity following years of excessive interest rates.

On September 18, 2024, the Federal Reserve announced a reduction of the federal funds target rate by 50 basis points, placing it between 4.75% and 5.00%. This represents the first interest rate cut in four years, marking a significant pivot from a historically tight monetary policyAnalysts at Goldman Sachs project a gradual recovery in both new and existing home sales over the next few years, forecasting an increase in new home sales from 680,000 in 2023 to 858,000 by 2027 and an uptick in existing home sales as well.

Amidst these developments, the potential resurgence in housing sales aligns closely with increased tools demand

In the North American and European markets, where homeowners tend to prioritize DIY maintenance tasks due to high labor costs and the complexities of home upkeep, a significant and growing appetite for tools existsFor Juxing Technology, the vast majority of sales stem from tools and hardware, predominantly directed at the Americas and Europe, verifying the importance of these markets in determining the company’s fortunes.

In addition to the emerging recovery in housing and declining interest rates, the conclusion of the extensive inventory scrubbing phase among retailers offers another layer of optimism for the tools sectorFollowing rapid downturns in consumer spending after an extensive period of excessive inventory build-up, major retailers like Walmart and Home Depot have undertaken aggressive inventory liquidation measures, drastically reducing their stock levels

Analysts from Huazhong Securities argue that the current low inventory positions will soon drive an uptick in orders as the industry stabilizes.

The dual factors of decreasing interest rates and rebounding consumer spending coupled with stable inventory levels suggest a favorable environment for Juxing TechnologyThe company estimates that North American tool consumption showed a year-on-year growth rate of 4% in the third quarter, signaling a positive departure from the stagnation observed in recent yearsWith further predictions of a continuation of this recovery trend, it seems poised to capitalize on the wave of increase in demand.

However, even with encouraging performance and recovery prospects, challenges lingerNotably, the appreciation of the Chinese renminbi against the U.Sdollar in the third quarter has led to potential discrepancies in revenue and profit translations, highlighting the risks associated with foreign exchange fluctuations