HLIND is positive on 2HFY24 (Jan-Jun 2024), both in terms of sales volume and margins driven by new models. It is venturing into replacement equipment manufacturing to garner a slice of action in the local motorcycle replacement part and accessory market estimated to be worth >RM2b annually. We maintain our forecasts, TP of RM10.50 and OUTPERFORM call.

We came away from a recent engagement with HLIND feeling upbeat on its outlook. The key takeaways are as follows:

1. HLIND expects a better 2HFY24 (Jan-Jun 2024) in terms of motorcycle sales, vs. 1HFY24 (Jul-Dec 2023) largely attributed to: (i) the launch of Yamaha Y16ZR ABS last month, (ii) the easing of credit control by motorcycle financiers, and (iii) a shift in product mix away from mass-market models, i.e. 125-cc and below, of which demand is slowing, and towards more highly sought-after models such as Y16ZR and Y15ZR (which now make up a third of total production, vs. 20% about two years ago).

We maintain our projections of industry sales volume of 585k units (- 10% YoY) and Yamaha’s sales volume of 287k units (-10% YoY) from Jul 2023 to Jun 2024. For the period from Jul 2024 to Jun 2025, we are slightly more positive for both industry and Yamaha sales volumes of 600k units and 290k units, respectively.

2. HLIND reiterated that its margin expansion experienced in 1QFY24 will sustain in the upcoming quarters which can be attributed from: (i) favourable sales mix toward high-margin new models (i.e. Y16ZR, Y15ZR, and XMax 250) and increased sales of their premium models (i.e. NMax, XMax, NVX and T-Max), (ii) progressive increase in motorcycles prices on average by 5% to pass on the rising cost of production, and (iii) reduction in lower-margin models production capacity in favour of the higher-margin models (Yamaha Motor production plant capacity to sustain at 70%). Recall, its net margin expanded to 10.5% from 9.3% YoY in 1QFY24.

3. HLIND plans to venture into replacement equipment manufacturing for motorcycles within CY24 to produce parts under house brands, which will be comparable to Yamaha’s genuine OEM parts in terms of quality but at affordable prices. This is to capitalise on the huge Yamaha motorcycle population in Malaysia (Malaysia is Yamaha motorcycles’ strongest market in the world with a 50% market share).

HLIND estimates that the local motorcycle replacement part and accessory market is worth >RM2b annually. There is an underserved segment for motorcycles enthusiasts whom wish to upgrade their motorcycles, but genuine Yamaha spare parts and accessories are beyond their budgets.

Forecasts. Maintained.

Valuations. We also maintain our TP at RM10.50 based on FY24F PER of 12x, at a 1x multiple premium to passenger vehicle sector’s average forward PER of 11x given its strong market position in the local motorcycle segment which prospects are buoyed by the booming gig economy. There is no adjustment to our target price based on ESG given a 3-star rating as appraised by us (see Page 4).

Investment case. We continue to like HLIND: (i) as it is a strong proxy to the booming gig economy given the critical role of motorised two-wheelers in executing online delivery transactions, (ii) for its association with the strong Yamaha motorcycle brand in Malaysia and the brand’s market leader position in the local motorcycle segment, and (iii) for its strong war chest with a net cash of RM1.6b which could be deployed for earnings-accretive acquisitions. Its dividend yield is attractive at 6%.

Maintain OUTPERFORM.

Risks to our call include: (i) consumers cutting back on discretionary spending (particularly big-ticket items like new motorcycles) amidst high inflation, (ii) supply chain disruptions, (iii) escalating input costs, and (iv) a global recession hurting demand for the export of its motorcycles and tiles.

Source: Kenanga Research - 15 Feb 2024