Hong Leong Industries (HLIND) is seen to hold the exclusive local manufacturing and distribution rights for the best-selling Yamaha motorbikes, HLIND is a strong proxy to Malaysia’s booming gig economy given the critical role of motorised two-wheelers in the last mile delivery for online transactions.
Kenanga Investment Bank Berhad (Kenanga) initiates coverage on Hong Leong Industries Bhd (HLIND) with an OUTPERFORM rating and a TP of RM11.40.
The stock also offers an attractive dividend yield of 7%.
HLIND, banking on its highly popular Yamaha motorcycles, is buoyed by the gig economy boom in Malaysia with workforce in the new economy segment estimated to reach 4.9m individuals in CY25 from 4.3m in CY22 (CAGR of 3%), with more than 70% either directly or indirectly involved in the online food delivery and e-commerce markets.
Amplifying the growth potential is the surge in the parcel hailing riders of which 93% uses motorcycles as their main source of income capitalising on the explosive online food delivery market and e-commerce markets which is expected to grow at CAGR of 11% and 7%, respectively (2023-2027).
Pole position in the local motorcycle market. Being the market leader in the local motorcycle segment with a commanding 49% share, sales of Yamaha motorcycles will be in lock-step with the booming gig economy.
The highly popular Yamaha motorcycle brand could be attributed to its range of high-quality motorcycles that cater to different needs and preferences, from sporty models like the YZF-R1M to the more practical and affordable models like the Y16ZR (refer to page 8) as well as high resale value in the secondary market.
Endowed with strong cashflows, re-rating on potential earnings enhancing acquisitions. The group’s massive war chest with a net cash of RM1,636.1m as at 31 March 2023 or RM5.00/share is expected to re-rate the stock on potential earnings enhancing acquisition.
Kenanga believes HLIND will target acquisitions that complement or provide synergies to its current core motorcycle business.
FY24F/FY25F net profit growth of 7.3%/8.4%. Kenanga project HLIND’s net profit to sustain its growth trend in FY24 and FY25, rising by 7.3% and 8.4%, respectively. This follows an expected massive 53% jump in FY23F earnings due to lower base effect in FY22.
The earnings growth is driven by: (i) 35%, 5%, 6% revenue growth in FY23, FY24, and FY25, (ii) sustainable EBIT margin of between 15% to 16% due to economies of scale and efficiency coupled with incremental revenue, and easing of input costs and supply constraints; and (iii) an effective tax rate of 24% each from FY23-FY25.
Kenanga initiates coverage with an OUTPERFORM call. Kenanga likes 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, (ii) for its exclusive manufacturing and distribution rights of Yamaha motorcycles in Malaysia and the brand’s pole position in the local motorcycle market, 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 also attractive at 7%.
Kenanga values HLIND at RM11.40 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 the booming gig economy.
The gig economy workforce to grow at a 2022-2025 CAGR of 3% over the next three years. HLIND is a prime beneficiary of the massive gig economy workforce in Malaysia estimated to reach 4.9m individuals in CY2025 from 4.3m in CY2022 (CAGR of 3%) with more than 70% either directly or indirectly involved in the online food delivery and ecommerce market.
Amplifying the growth potential is the surge in the parcel hailing riders base, of which 93% uses motorcycles as their main source of income, which is estimated to reach 90k active riders by CY2025 from 70k active riders in CY2022 (CAGR of 9%), which is much faster than the growth trajectory of local motorcycle TIV (CAGR of 4.4%).
Kenanga estimates that the motorcycles TIV will reach another record high of 670k units (+3%) and 720k units (+7%), for FY24 and FY25, respectively, riding on the new model replacement cycles which are becoming much shorter with the rise in the gig economy especially the parcel hailing industry capitalising on the explosive online food delivery market and ecommerce market.
Industry experts project the local online food delivery market to grow at a CAGR of 11% from 2023 to 2027, while its size could reach US$3.9b by 2027 from US$2.3b in 2023. The market gained a great deal of traction from the COVID-19 pandemic with growth seen in almost every market in the world. With movement restriction lifted in 2022, the online food delivery market is still growing incrementally, as it is becoming a new norm within the community. Industry experts project the local e-commerce gross merchandise volume to grow at a CAGR of 7% from 2023 to 2027, while its size could reach RM1.9t by 2027 from RM1.4t in 2023.
