HLIND is garnering a slice of action in the lucrative and sizeable spare parts market via its new automotive spare parts brand called Tekhne. HLIND will entirely outsource the manufacturing of Tekhne products, which focus on 2-wheelers to capitalise on the huge Yamaha motorcycle population in Malaysia. We maintain our forecasts, TP of RM11.70 and OUTPERFORM call.

We recently attended the launching of HLIND’s new automotive spare parts brand, Tekhne which offers a range of original equipment manufacturer (OEM) and replacement equipment manufacturer (REM) parts for both 2- and 4-wheelers, i.e. braking system, suspension system, cast wheels, tyres, lubricant and others (see page 2). HLIND estimated that the local automotive spare parts market is worth RM40b annually, with a compound annual growth rate of 5.7% (from 2024 to 2028).

HLIND will entirely outsource the manufacturing of Tekhne products, which focus on 2-wheelers to capitalise on the huge Yamaha motorcycle population in Malaysia (Malaysia is Yamaha motorcycles’ strongest market in the world with a 50% market share). There is an underserved segment for motorcycles enthusiasts who are keen to upgrade their motorcycles, but genuine Yamaha spare parts and accessories are beyond their budgets. Typically, the sale of auto spare parts commands a higher margin than the sale of motorcycles. HLIND believes that it can eventually realise a gross margin of 40% (which is double that of what it can earn from the sale of motorcycles) when it hits critical sales volume.

Tekhne is collaborating with companies such as Taiwanese bicycle manufacturer Giant group for product development, i.e. crafting advanced cast wheels for two-wheelers, with expansion to four-wheelers in the pipeline. Tekhne will also provide products and services to AHM Motor Sports (motorcycles racing team) to showcase its products in the international platform.

To penetrate into ASEAN and global markets, Tekhne will also have a one-stop centre, providing customers with a range of products and services for various automotive needs, as well as research and development (R&D) centre that will focus on electronics, wheels, suspension and braking systems catering to both 2- and 4-wheeler.

Forecasts. Maintained as we do not expect meaningful contribution from Tekhne products within our forecast period.

Valuations. We also maintain our TP at RM11.70 based on PER of 12x on FY25F EPS, 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 5).

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 - 8 Mar 2024