Hong Leong Industries - Motorbike Sales Zoom as Credit Eases

Date: 
2024-05-17
Firm: 
KENANGA
Stock: 
Price Target: 
12.60
Price Call: 
BUY
Last Price: 
19.16
Upside/Downside: 
-6.56 (34.24%)

HLIND’s 9MFY24 results beat our expectation. Its 9MFY24 core net profit rose 11% YoY driven by credit easing by motorcycle financiers from 3Q (Jan-Mar 2024), price hikes, and shift toward more premium products and strong margins from new models. We raise our FY24- 25F net profit forecasts by 6% and 8%, respectively, lift our TP by 8% to RM12.60 (from RM11.70), and maintain our OUTPERFORM call.

HLIND’s 9MFY24 core net profit (excluding one-offs at RM44m) beat our expectation at 81% of our full-year forecast. The variance against our forecast arises largely from strong motorcycle sales on credit easing by financiers. There is insufficient research coverage by the market to form a consensus estimate.

It declared a second interim NDPS of 37 sen (ex-date: 4 Jun 2024; payment date: 25 Jun 2024) in 3QFY24 vs. 37 sen in 3QFY23, bringing total FY24 NDPS to 107 sen vs. 57 sen in FY23, as expected.

YoY, its 9MFY24 revenue fell 12% mainly due to weaker motorcycles sales on the back of credit tightening by motorcycle financiers (which has since recovered in 3Q). Its plant utilisation levels at both Yamaha Motor and Guocera production plants remained stable at 70%-80%. Meanwhile, its associate Yamaha Motor Vietnam (YMVN) saw weaker contribution of RM23.3m (-46%) due to market share loss.

However, its core net profit grew 11% 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, towards more premium models such as Y16ZR and Y15ZR, and (iii) higher margins realised from the new-generation Y16ZR ABS, Y15ZR SE, XMax 250 and Ego Gear.

QoQ, its 3QFY24 revenue rose 2% driven by the new model Yamaha Y16ZR ABS (launched in Jan 2024) and credit easing by motorcycle financiers. Its core net profit, however, fell 11% mainly on a higher tax rate of 23.6% vs 20.5% in 2QFY24.

Forecasts. We raise our FY24-25F net profit forecasts by 6% and 8%, respectively. We now project both Jul 2023 - Jun 2024 industry sales volume and Yamaha sales volume to contract by 6% YoY (vs. -10% previously). We increase industry sales volume to 610k units (from 585k units) and Yamaha sales volume to 300k units (from 287k units). For the period from Jul 2024 to Jun 2025, we are slightly more positive for both industry and Yamaha sales volumes of 620k units and 310k units, respectively.

Valuations. Correspondingly, we upgrade our TP by 8% to RM12.60 (from RM11.70), based on unchanged PER of 12x on FY25F EPS, at 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 - 17 May 2024

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