HLIND’s 1HFY24 results beat our expectation. Its 1HFY24 core net profit rose 10% YoY driven by price hikes, a shift toward more premium products and strong margins realised for new models. We raise our FY24-25F net profit forecasts by 6% each, lift our TP by 11% to RM11.70 (from RM10.50), and maintain our OUTPERFORM call.

HLIND’s 1HFY24 core net profit (excluding RM18.5m gains from the disposal of Hume Cemboard Industries Sdn Bhd) beat our expectation at 60% of our full-year forecast. The variance against our forecast came largely from stronger-than-expected margins from new models. There is insufficient research coverage by the market to form consensus estimate.

It declared a special NDPS of 50 sen (ex-date: 27 Mar 2024; payment date: 29 Mar 2024) in 2QFY24 vs. none in 2QFY23, which brings 1HFY24 NDPS to 70 sen vs. 20 sen in 1HFY23, above our expectation.

YoY, its 1HFY24 revenue fell 8% mainly due to weaker motorcycles sales on the back of credit tightening by motorcycle financiers. Its plant utilisation levels in both Yamaha Motor and Guocera production plants remained stable at 70%-80%. Meanwhile, its associate Yamaha Motor Vietnam (YMVN) saw weaker contribution of RM10m (-69%) due to market share loss.

However, its core net profit grew 10% on: (i) an average price hike of 5%, (ii) a shift in product mix away from mass-market models, i.e. 125- cc and below, of which demand is slowing, and towards more premium models such as Y16ZR and Y15ZR, and (iii) higher-than-expected margins realised from the new-generation Y15ZR SE, XMax 250 and Ego Gear.

QoQ, its 2QFY24 revenue fell 11% as buyers held back purchases in anticipation of new models, i.e. Yamaha Y16ZR ABS in Jan 2024. Its core net profit only fell 5% thanks to a lower tax rate of 20.5% vs 22.2% in 1QFY24.

Forecasts. We raise our FY24-25F net profit forecasts by 6% each to reflect better margins.

Valuations. Correspondingly, we upgrade our TP by 11% to RM11.70 (from RM10.50), having also rolled forward our valuation base year to FY25F (from FY24F) an on unchanged 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 twowheelers 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

Source: Kenanga Research - 22 Feb 2024