Hong Leong Industries (HLIND) did not declare a dividend during the quarter, as it typically announces an annual dividend during 1H.
“HLIND’s FY23 revenue rose 39% on the economy reopening with stable production at both Yamaha Motor and Guocera production plants,” said Kenanga Research (Kenanga) in the recent Results Note.
However, its earnings before interest and tax only grew 23% as it booked in high-cost inventories procured during the period of supply chain disruptions.
“In the absence of prosperity tax, its core net profit rose by a larger magnitude of 53%. In terms of motorcycle industry total industry volume, the number rose to 650,000 units (+3%) Malaysia and 2.58m units (+2%) in Vietnam,” said the research house.
HLIND’s 4QFY23 revenue fell 17% mainly due to reduced production capacity of the Yamaha popular models in anticipation of the
launching of new-generation Y15ZR SE, XMax 250 and Ego Gear.
Nevertheless, its earnings before interest and tax only eased 1% with the gradual run-down of high-cost inventories. Its core net profit
rose 5% thanks to a lower effective tax rate.
“We also keep our Target Price at RM11.40 and maintain the Outperform rating,” said Kenanga.
The research house likes HLIND as it is a strong proxy to the booming gig economy given the critical role of motorised two-wheelers in executing online delivery transactions, its association with the strong Yamaha motorcycle brand in Malaysia and the brand’s market leader position in the local motorcycle segment, and 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 7%.
Risks to Kenanga’s call include consumers cutting back on discretionary spending (particularly big-ticket items like new motorcycles) amidst high inflation, supply chain disruptions, escalating input costs, and a global recession hurting demand for the export of its motorcycles and
tiles.
