Kenanga Research favours Hong Leong Industries Bhd for its association with the Yamaha motorcycle as the market leader in the local motorcycle segment, its strong war chest and its attractive dividend yield at 6%.

KUALA LUMPUR (Feb 22:) Shares in Hong Leong Industries Bhd (HLI) surged to its all-time high on Thursday, as Kenanga Research raised its target price (TP) and earnings forecasts following HLI’s better-than-expected results.

The counter opened at RM9.96 and touched a high of RM10.50 at 9.13am. At this price, the counter is valued at RM3.92 billion. Since the beginning of the year, the stock has risen by 11%.

Kenanga Research, which is the only research house covering the stock, said that HLI’s net profit of RM190.14 million in the first half of 2024 (1HFY2024) beat its expectation at 60% of its full-year forecast.

As HLI’s earnings exceeded the research house’s previous forecasts, Kenanga has now raised HLI’s net profit forecasts for FY2024 to FY2025 by 6% each to reflect better margins.

The research house maintained its “outperform” rating on HLI but raised its TP by 11% to RM11.70 (from RM10.50) — given HLI’s strong market position in the local motorcycle segment whose prospects are buoyed by the booming gig economy.

Apart from that, Kenanga also favours the stock for its association with the Yamaha motorcycle brand in Malaysia and the brand’s market leader position in the local motorcycle segment, its strong war chest — with a net cash of RM1.6 billion, HLI could be deployed for earnings-accretive acquisitions — and its attractive dividend yield at 6%.

However, it highlighted several risks to the stock including consumers cutting back on discretionary spending (big-ticket items like new motorcycles) amidst high inflation, supply chain disruptions, escalating input costs, and global recession hurting demand for the export of its motorcycles and tiles.