Hong Leong Industries Bhd (HLIND) will focus on high-margin premium motorcycle models to counter the weakening sales of mass-market models as motorcycle financiers tighten lending.
“We now project July 2023 to June 2024 industry sales volume to contract by 10% year-on-year (YoY) versus more than 3% previously,” said Kenanga Research.
The research house maintains its OUTPERFORM call, cuts its FY24-25F net profit forecasts by 8% and 10%, respectively, lower its by 8% to RM10.50 from RM11.40, with no adjustment to a 3-star ESG rating.
This, it said, is to reflect weaker motorcycle sales volumes as mentioned, partially offset by margin improvement from premium models.
“Consequently, we lower our TP by 8% to RM10.50 (from RM11.40) based on an unchanged 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,” it said.
Kenanga added from its recent engagement with HLIND, post the group’s recent 1QFY24 results announcement, the group is not spared the prevailing macro-economic headwinds.
It said the group shared that the weakness in its 1QFY24 motorcycles sales can be attributed to the credit tightening by motorcycle financiers to shield them from non-performing loans, and the slowdown in demand for mass-market models (135-cc and below).
“To counter these, the group will focus on premium models that fetch better margins and for which demand is still resilient,” it said.
Therefore, the research house now projects both July 2023 – Jun 2024 industry sales volume and Yamaha sales volume to contract by 10% YoY compared to 3% increase previously.
“We lower industry sales volume to 585k units (from 670,000 units) and Yamaha sales volume to 287,000 units (from 330,000 units).
“From July 2024 to June 2024, we expect marginal improvement for both industry sales volume and Yamaha sales volume to 600k units and 290k units, respectively,” it said.
HLIND also shared that the margin expansion it experienced in 1QFY24 came from favourable sales mix toward high-margin new models such as Y15ZR SE and increased sales of their premium models such as NMax, Kenanga said.
“(Additionally), the increase in motorcycles prices on average by 5% to pass on the rising cost of production, and reduction in lower-margin models production capacity in favour of the higher-margin models (current Yamaha Motor production plant capacity to sustain at 70%).”
Last year, its net margin expanded to 10.5% from 9.3%, which its expect to sustain it for the remaining quarters.
It added the group also shared that associate Yamaha Motor Vietnam (YMVN)’s challenging business environment will likely persist due to saturated motorcycles market there as the fourth largest in the world.
The risks to Kenanga’s call include consumers cutting back on discretionary spending amidst high inflation, supply chain disruptions, escalating input costs, and a global recession.
