Highlights
KLSE: HLIND (3301)       HONG LEONG INDUSTRIES BHD MAIN : Consumer
Last Price Today's Change   Day's Range   Trading Volume
8.40   0.00 (0.00%)  8.39 - 8.42  13,900
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Overview

Market Cap: 2,754 Million
NOSH: 328 Million
Avg Volume (4 weeks):45,231
4 Weeks Range:8.13 - 8.46
4 Weeks Price Volatility (%):
81.82%
52 Weeks Range:6.04 - 11.60
52 Weeks Price Volatility (%):
42.45%
Average Price Target: 8.63
Price Target Upside/Downside: +0.23

Financial Highlight

Latest Quarter | Ann. Date 31-Mar-2020 [#3]  |  22-May-2020
Next QR | Est. Ann. Date: 30-Jun-2020  |  29-Aug-2020
T4Q P/E | EY: 9.88  |  10.13%
T4Q DY | Payout %: 4.79%  |  47.29%
T4Q NAPS | P/NAPS: 5.4298  |  1.55
T4Q NP Margin | ROE: 12.97%  |  15.66%

Headlines

Date Subject
27-May-2020 Mplus Market Pulse - 27 May 2020
30-Apr-2020 下跌股:丰隆工业RM8.07支撑
11-Apr-2020 下跌股:丰隆工业RM7.64支撑
25-Dec-2019 上升股:丰隆工业阻力RM10.60
11-Dec-2019 下跌股:丰隆工业RM9.64支撑
26-Nov-2019 上升股:丰隆工业阻力RM10.60
14-Nov-2019 Daily Technical Highlights – (CIMB, HLIND)
02-Aug-2019 下跌股:丰隆工业RM10.70支撑

Business Background

Hong Leong Industries Bhd is a Malaysia-based company that primarily operates through two segments. The company’s consumer products segment manufactures, assembles, and markets consumer products, including motorcycles, scooters, and related parts, and produces ceramic tiles. The industrial products segment produces and distributes industrial products comprising fibre cement and concrete roofing products. The company also has associates that are involved in motorcycle manufacturing and distribution, as well as newsprint manufacturing and marketing. Hong Leong Industries generates the majority of its revenue from the Malaysian domestic market.
Analyze this stock with MQ Trader system

  5 people like this.
 
observatory The share price of HLIND has been solid until today. While the market panic, HLIND stock price remained firm. But today it dropped 15%. In contrast Oriental dropped about 3%.

It's unclear what might be the firm specific reason contributing to the sharp fall other than general market panic and pessimism over the economy.

What's the possibility that both active & passive fund managers who tracked the MSCI index did not fully dispose their holdings when HLIND was excluded from the index a few months ago, and are forced to dump now?
16/03/2020 6:15 PM
limkokthye c liao, sell all the stock now
16/03/2020 6:57 PM
limkokthye holland industries
16/03/2020 6:58 PM
RainT down n down more
16/03/2020 8:24 PM
observatory Today the closing price is RM6.78. I wonder what kind of scenario it has priced in. Factory and dealer shops' closure due to Covid-19 outbreak? Deep recession?

It's impossible to predict the bottom. But given HLIND's strong balance sheet, it should survive even a deep recession.

As of the lastest quarter, net cash is RM1,254m - RM32m = RM1,223m, or RM3.9 per share. FCF is RM1.6 per share. Even if it just breaks even this year, but recovers next year, I believe there is still a good margin of safety.

For long term investors, the dilemma may be prices for other stocks have also fallen a lot. It's hard to judge the relative attractiveness among them. But HLIND at current price seems quite attractive.
16/03/2020 9:02 PM
SilverHawk Margin call force selling maybe the reason of desperate dumping
16/03/2020 9:08 PM
Harry lol
16/03/2020 9:11 PM
observatory Speculators probably won't buy this stock on margin given its share price is slow-moving? May be fund managers need to dump the stock to meet redemption demand or raising cash to buy more attractive bargains?
16/03/2020 10:01 PM
shareinvestor88 bye tp 2
16/03/2020 11:30 PM
SilverHawk Margin call were based on Margin Of Finance ratio in the portfolio. Yes , there was margin call around few of my friend this few days. So , they need either top up cash or deplete some position on their portfolio ( They can choose to sell any counter in the portfolio to reduce finance amount ). MOF varies among bank. Some bank once reach MOF 55% u need top up or force sell. Some bank will tolerate till MOF 60%, 65% or even 70%.

But based on today's volume, more chance is : the fund desparate dumping. Most likely is foreign fund. A number of counters fall more than 10% include my babies aeoncr. Carlsberg Aji Heineken ... also fall more than ten percent. Banking sector also huge fall recently . There is nothing to do with FA. Some relate this to worsening of macro due to oil crash and covid 19 and even recession.

Dumping to meet redemption demand maybe is another factor.

In economics term, when supply of liquidity ( huge dumping ) is more than demand, price will fall, and vice versa.

If we are in zero margin, non FA related price fall is nothing to impact us immediately. We either just keep or top up. When time move , it's share price will come back.

If we are able to hold for years as long as the value still there or company is still growing, those months long issue shouldn't be a problem to us.
16/03/2020 11:31 PM
observatory Agree. For long term investment, the focus should be on the fundamentals; that the company's long term prospect remains healthy and is not affected by current events.
16/03/2020 11:51 PM
RainT @silverhawk

thanks for share insight
18/03/2020 11:11 AM
limkokthye ho lland industries
19/03/2020 3:48 PM
Darius Tanz Dividend is great, fundamentals great. I'm investing in hlind fr very long term.

https://netflyp.com/2020-dividend-growth-stocks-on-bursa-malaysia/
31/03/2020 8:59 AM
kywoo I understand from dealers that there is a pent up demand for motorcycle in the country. As food delivery is getting very popular day by day the demand for motorcycle is increasing. As income level of the working class is expected to come down, people prefer motorcycle to cars to save cost. Car sale will be down and motorcycle sale will benefit. One can expect Yamaha bike sale to jump up in the coming months. That is good news for the company as 90% of company profit come from Motorcycle sales.
01/04/2020 9:51 AM
kywoo For certain strange reasons motorcycle buyers in Malaysia prefer Yamaha bikes to other brands. That is why Yamaha captures about 51% of local market. On the other hand Vietnamese buyers prefer Honda bikes than any brand. Yamaha is trying hard to capture a higher share but find it an uphill task.
01/04/2020 9:58 AM
kywoo Another good thing about company is that it can increase Yamaha bikes production by 30% to 40% without increasing capital expenditure on plant expansion and hence increasing cash inflow. One can expect the already bloated cash holding to increase even further in coming years. Company has to increase dividend payment substantially to contain growth of cash holding.
01/04/2020 10:08 AM
x3mg33 Makes a lot of sense @kywoo hopefully with it’s strong cash flow the company is able to weather the storm
01/04/2020 3:33 PM
kingJ With the over 1b in bank, now its time to invest in good potential companies
09/04/2020 7:19 PM
Gemstar Yah cash flow and good dividend better than asb
17/04/2020 10:12 AM
Gemstar Below are the data sources, inputs and calculation used to determine the intrinsic value for Hong Leong Industries Berhad.

KLSE:HLIND Discounted Cash Flow Data Sources
Data Point Source Value
Valuation Model 2 Stage Free Cash Flow to Equity
Levered Free Cash Flow Average of 1 Analyst Estimates (S&P Global) See below
Discount Rate (Cost of Equity) See below 9.8%
Perpetual Growth Rate 10-Year MY Government Bond Rate 3.4%
An important part of a discounted cash flow is the discount rate, below we explain how it has been calculated.

Calculation of Discount Rate/ Cost of Equity for KLSE:HLIND
Data Point Calculation/ Source Result
Risk-Free Rate 10-Year MY Govt Bond Rate 3.4%
Equity Risk Premium S&P Global 7.0%
Industrials Unlevered Beta Simply Wall St/ S&P Global 0.87
Re-levered Beta = 0.33 + [(0.66 * Unlevered beta) * (1 + (1 - tax rate) (Debt/Market Equity))]
= 0.33 + [(0.66 * 0.868) * (1 + (1 - 24.0%) (1.96%))] 0.920
Levered Beta Levered Beta limited to 0.8 to 2.0
(practical range for a stable firm) 0.920
Discount Rate/ Cost of Equity = Cost of Equity = Risk Free Rate + (Levered Beta * Equity Risk Premium)
= 3.42% + (0.920 * 6.96%) 9.83%
Discounted Cash Flow Calculation for KLSE:HLIND using 2 Stage Free Cash Flow to Equity Model

The calculations below outline how an intrinsic value for Hong Leong Industries Berhad is arrived at by discounting future cash flows to their present value using the 2 stage method. We use analyst's estimates of cash flows going forward 5 years for the 1st stage, the 2nd stage assumes the company grows at a stable rate into perpetuity.

KLSE:HLIND DCF 1st Stage: Next 5 year cash flow forecast
Levered FCF (MYR, Millions) Source Present Value
Discounted (@ 9.83%)
2020 515.72 Est @ 2.93% 469.58
2021 531.59 Est @ 3.08% 440.73
2022 548.5 Est @ 3.18% 414.07
2023 566.34 Est @ 3.25% 389.28
2024 585.04 Est @ 3.3% 366.16
2025 604.57 Est @ 3.34% 344.54
2026 624.9 Est @ 3.36% 324.26
2027 646.02 Est @ 3.38% 305.23
2028 667.93 Est @ 3.39% 287.35
2029 690.65 Est @ 3.4% 270.54
Present value of next 5 years cash flows MYR3,611
KLSE:HLIND DCF 2nd Stage: Terminal Value
Calculation Result
Terminal Value FCF2029 × (1 + g) ÷ (Discount Rate – g)
= MYR690.645 x (1 + 3.42%) ÷ (9.83% - 3.42% ) MYR11,151.18
Present Value of Terminal Value = Terminal Value ÷ (1 + r)10
MYR11,151 ÷ (1 + 9.83%)10 MYR4,368.15
KLSE:HLIND Total Equity Value
Calculation Result
Total Equity Value = Present value of next 10 years cash flows + Terminal Value
= MYR3,611 + MYR4,368 MYR7,979.15
Equity Value per Share
(MYR) = Total value / Shares Outstanding
= MYR7,979 / 314 MYR25.41
KLSE:HLIND Discount to Share Price
Calculation Result
Value per share (MYR) From above.
17/04/2020 10:58 AM
kywoo Wow. Your analysis is so complicating that most people may not understand. Although I have been a serious investor for over 45 years and had been a successful one, I never resort to such meticulous and complicating calculation. I wonder if fund managers and stock analyst use such detailed method before they make recommendations for lay investors to buy. Anyway, good job and thanks for effort.
19/04/2020 4:49 PM
Gemstar ;) just sharing
25/04/2020 6:17 PM
FoolsGold "We use analyst's estimates of cash flows going forward 5 years for the 1st stage, the 2nd stage assumes the company grows at a stable rate into perpetuity."

guess sja lah...
25/04/2020 6:29 PM
FoolsGold but feels better when buy is supported by highgly qualified guessers..
25/04/2020 6:32 PM
observatory @Gemstar, thanks for your sharing.
I also use discounted cash flow model for the purpose of double checking. I’ll vary the assumed initial FCF, growth rate, perpetual growth, discount rate to get an idea of different fair values under different assumptions. I also reverse calculate from the current price to understand what are the assumptions implied in the current share price.

After doing one company, the exercise can be extended to other companies (although very time consuming). While I don’t believe in a precise fair value (that doesn’t exist), I think such exercise helps to understand relative attractiveness across different companies.

But back to your valuation, I have a few questions/ comments:

1. Your stage 1 is based on 10-year period, not 5 years as mentioned

2. Your discount rate of 9.8% seems fair. I’m wary of using beta to calculate discount rate, as beta changes over time when share price swings. But I think a 10% discount for a conservative company with a huge net cash position is fair.

3. I’m skeptical about the year 2020 FCF projected by the analyst you mentioned (BTW which analyst?). I guess the projection RM515.72 million is related to the trailing 12 months FCF which is RM512 million. But during the MCO of at least 8 weeks, sales & factory operation across all businesses will be severely impacted. There is also potentially weak demand post-MCO. Vietnam associate may face similar challenges. The company may bounce back in 2021, but I think 2020 will see a much lower FCF than the past 12 months.

4. Your FCF growth rate assumption starts at 2.93% in the first year, and it grows faster and faster until 3.4%, and the perpetual growth rate is the highest at 3.42%. Such an assumption is unusual because all businesses face increasing competition over time. A prudent approach might be to start with a higher growth rate, but settle with a lower perpetual growth rate at the terminal stage.

Try varying those assumptions and the fair value can differ substantially.
26/04/2020 12:46 AM
RainT meow
28/04/2020 6:55 PM
pinnaclegrade Par Value 0.50 ...
07/05/2020 9:35 PM
Multibagger @Gemstar, thanks for the good effort. Getting different views and feedback will allow us to learn together. But I have some reservation on the assumptions and generally agree with Observatory's comments on initial FCF and FCF growth assumption (looking at past years average FCF, 500 mil is definitely on the very high side). For me, 300 to 400 mil would be a more reasonable range.

What contribute to the growth assumption? If it is motorcycle sales, which is a durable consumer goods, what drive it? Population growth or inflation? Dont think can derive growth from building materials unit.

There is one area you may want to rethink again in your IV calculation...Has the Non Controlling Interest (or Minority Interest as I, the old timer used to know it in the past) been factored in? If we look at the Income statement and Balance sheet, this NCI is rather substantial.

Anyway, IV is a just an indicator as there are too many variables and assumptions in the model.
BUt one thing is sure, it has lots of cash and is a strong cash generator with minimum CAPEX.
09/05/2020 6:41 AM
RainT hope that HLIND can utilise its cash reserve for expand business

just depend on the motorbike only is not enough

HLIND dont have competitve advantage over ist motorbike business
09/05/2020 5:48 PM
bestman Post removed. Why?
09/05/2020 6:05 PM
ykloh its dumb for the big cash pile to be left idling.
10/05/2020 12:42 AM
RainT meow...
19/05/2020 11:51 AM
pinnaclegrade any idea when will the Q1 report be released?
22/05/2020 2:01 PM
ongkkh Released and profit is dropping...
22/05/2020 6:30 PM
pinnaclegrade understandably, as majority of businesses are affected by the mco /cmco due to coronavirus.. hope there won't be a 2nd wave of infections after raya and business can stabilize and prosper once again
22/05/2020 9:44 PM
mf gap down
22/05/2020 9:45 PM
observatory Dividend is cut from 35sen to 25sen to "preserve" cash!
22/05/2020 10:09 PM
Eric963708 net cash company stil reduce dividend
23/05/2020 3:56 AM
RainT dont care for its prospect

see the cash pile, just hold it till next quarter
23/05/2020 12:32 PM
Thinkcarefully Next quarter would be worse - April to June.
Hopefully would improve in 2nd half
25/05/2020 10:39 AM
gohku Look attractive to collect at this price.
A very well manage company of Hong Leong Group, its dividend exceed banks deposits rate,
25/05/2020 10:57 AM
gemfinder I dun think is attactive to colec now
25/05/2020 10:58 AM
gohku You pay a fair price for a good quality stable stock.

Alot of people are hunting for yield.

Pe 7x and dividend yield above 6% pa is highly attractive.
25/05/2020 11:05 AM
Bao2lai Correct me if im wrong, dy still got 6% base on current market price? Dps is 42 , to get 6% meaning Rm8160 per share still need to discount at least 14.2%.
25/05/2020 6:39 PM
EngineeringProfit My favourite for long term
25/05/2020 6:49 PM
Bao2lai Consumer mind set with a branded product drive by a lack transparency management. The latter need to improve for a better forward pe.
25/05/2020 7:08 PM
Jaya RainT
This got very good upside
25/05/2020 8:36 PM
Jaya Sell sell people
Lower the price
I want to buy cheap for long term
26/05/2020 6:31 AM
pinnaclegrade investment grade stock for the long term, grade A dividend play
26/05/2020 8:50 PM


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