Latest US tariff announcement removes uncertainty for the global power tools sector

Overview

This report discusses the impact of the latest US tariff announcement on the global power tools sector. Citi believes the new tariff of 10%-12.5% replacing the temporary 10% tariff, and remaining below the 20% reciprocal tariff scenario previously assumed by some companies, removes policy uncertainty after the temporary tariff expires and has a positive impact on the sector, especially on companies with high US market exposure and branded businesses that bear tariff costs.

Core views

The core views are: lower tariff uncertainty will improve market expectations for tool companies' margins and earnings; TTI and SWK may see upward earnings revisions because they had budgeted for higher tariffs; TTI's operating margin expansion is more worth watching than revenue growth; Great Star benefits from resilient core hand tools, high growth from a low base in power tools and energy storage, and capacity shifting to ASEAN; Chervon's valuation is cross-checked using both PE and DCF; SWK benefits from efficiency improvements and cost reductions, but its upside elasticity is relatively lower.

Analysis framework

The report mainly uses policy event-driven industry impact analysis, combined with company-level valuation, earnings forecasts, margin breakdowns, and risk factors. Valuation methods include target PE multiples, DCF cross-checks, EPS CAGR, price-to-book multiples, and comparisons with peer averages or standard deviation ranges.

Methodology notes

• Valuation methodspe_multiple

  P/E valuation

  Chervon is valued at 11x 2027E PE, Great Star at about 19x 2026E PE, SWK at 18x 2026E PE, and TTI at about 20x 2027E PE.

• Valuation methodsDCF

  DCF cross-check

  Chervon uses a DCF cross-check, assuming a WACC of 7.8% and a terminal growth rate of 2%, discounting forecast free cash flow through FY30.

• earnings_analysisoperating_margin_bridge

  Operating margin bridge

  TTI's margin expansion is broken down into lower tariffs, the disappearance of HART losses, and product mix upgrades toward MWK and higher-end businesses.

• policy_analysistariff_scenario_comparison

  Tariff scenario comparison

  The report compares the latest 10%-12.5% tariff with the previous temporary 10% tariff and the possible 20% reciprocal tariff budgeted by companies to assess changes in earnings expectations.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• Techtronic Industries Co Ltd (0669.HK)

  Citi's most preferred covered name, benefiting from US market exposure, tariff easing, and margin expansion.

  Strengths

  Revenue growth is expected to accelerate to 5%-6% in 2026E, MWK is expected to grow at a low double-digit rate over the next three years, and operating margin can be driven by lower tariffs, the disappearance of HART losses, and mix upgrades.

  Weaknesses

  Sensitive to US and European macro conditions, housing starts, the US dollar, and tariff changes in ASEAN/Mexico.

  Comparison

  Ranks first in Citi's preference order, ahead of Great Star, Chervon, and SWK.

  Risks

  Weaker-than-expected macro conditions in the US and Europe, sluggish housing starts, European geopolitical risks, a weaker US dollar, and higher-than-expected tariffs in ASEAN and Mexico.

• Hangzhou Great Star Industrial (002444.SZ)

  Benefits from resilient hand tools, growth in power tools and energy storage, and capacity shifting to ASEAN to lower tariffs and costs.

  Strengths

  Overseas demand for core hand tools is resilient, power tools and energy storage businesses are growing rapidly from a low base, and capacity migration helps reduce costs and tariffs in the US and European markets.

  Weaknesses

  Growth slows under US reciprocal tariffs in 2025E, and earnings are negatively correlated with RMB appreciation against the US dollar.

  Comparison

  Ranks second in Citi's preference order, behind Techtronic.

  Risks

  US and European macro slowdown, demand drag from rising interest-rate cycles, and RMB appreciation against the US dollar.

• Chervon (2285.HK)

  Benefits from easing tariff uncertainty, but its smaller scale leads to a 40%-50% valuation discount versus global peers.

  Strengths

  Its global leadership in OPE, solid financials, strong global customer base, and long operating history support valuation.

  Weaknesses

  Shorter listing history, and the power tools business is a relative weak spot.

  Comparison

  Ranks third in Citi's preference order, below Techtronic and Great Star, but above SWK.

  Risks

  Higher-than-expected new US trade tariffs, weaker-than-expected sales growth due to US rate hikes, and loss of market share in power tools.

• Stanley Black & Decker (SWK.N)

  US tariffs coming in below the budgeted scenario may lead to earnings upgrades, but it ranks lowest relatively.

  Strengths

  Operating and gross margins are expected to continue improving in 2026 through efficiency gains and cost reductions, and the worst phase of the 2023 earnings downturn may have passed.

  Weaknesses

  The target PE has been lowered from the previous 19-20x to 18x, reflecting more limited valuation elasticity.

  Comparison

  Ranks fourth in Citi's preference order.

  Risks

  Weaker-than-expected end demand in the US and Europe, higher-than-expected material costs, execution missteps in gross margin expansion, and weaker-than-expected trade tariffs under the Trump admin.

Key data

• Latest US tariff10%-12.5%Covers about 60 trading partners and replaces the temporary 10% global tariff expiring on July 25.
• TTI 2H26E earnings growth26%Citi expects TTI earnings growth to accelerate from 12% in 1H26E to 26% in 2H26E.
• TTI 1H26 operating margin expansion60bp30bp from lower tariffs, 20bp from the disappearance of HART losses, and 10bp from product mix upgrades.
• TTI 2H26 operating margin expansion130bp80bp from the disappearance of HART losses, 40bp from lower tariffs, and 10bp from product mix upgrades.
• Chervon target priceHK$24Based on 11x 2027E PE, with DCF fair value at HK$25.
• Great Star target priceRmb49Based on about 19x 2026E PE, with three-year forward EPS CAGR through 2028E estimated at 16%.
• SWK target priceUS$100Based on 18x 2026E PE, lowered from the previous 19-20x 2025 PE to 0.5 standard deviations below the mean.
• TTI target priceHK$150Based on about 20x 2027E P/E, with three-year forward EPS CAGR through 2028E estimated at 18%.

Impact & implications

The removal of tariff uncertainty helps reduce the sector risk premium and improve market expectations for margin recovery in 2026. For TTI and SWK, if company budgets had already included higher tariffs, the new tariff rate could directly translate into upward earnings revisions; for Great Star and Chervon, capacity allocation, US demand, and tariff policy remain key to valuation realization.

Risks

• Tariffs on capacity related to China, Vietnam, ASEAN, or Mexico imposed by the US are higher than expected.
• Tool demand is pressured by weaker-than-expected macro conditions in the US and Europe, rising interest rates, or weak housing starts.
• Higher-than-expected material costs or weaker-than-expected execution of corporate cost reduction weigh on gross margin and operating margin improvement.
• RMB appreciation against the US dollar may pressure Great Star's earnings, while a weaker US dollar may also affect regional profit performance for some companies.
• Chervon may lose market share in power tools or see weaker-than-expected demand.
• Geopolitical risks and slower European economic growth may affect globalized companies such as TTI.

What to watch

• Whether subsequent US tariff details, applicable countries, and legal basis continue to change.
• TTI's 1H26E earnings preview and the extent to which operating margin expansion is delivered.
• Whether the market raises earnings forecasts for TTI and SWK.
• Great Star's progress in shifting capacity to ASEAN, and whether revenue from power tools and energy storage follows the high-growth path.
• Whether US housing, repair and maintenance, construction activity, and a declining interest-rate cycle improve end demand.
• Subsequent changes in each company's target price, rating, and Catalyst Watch.