Hong Leong Industries will focus on high-margin premium motorcycle models to counter the weakening sales of mass-market models as motorcycle financiers tighten lending. Kenanga said it now projects Jul 2023 – Jun 2024 industry sales volume to contract by 10% YoY (vs. +3% previously).
The broking house cuts its FY24-25F net profit forecasts by 8% and 10%, respectively and lowered its TP by 8% to RM10.50 (from RM11.40) but maintained its OUTPERFORM call.
Kenanga said it understood from an engagement with Hong Leong Industries that post its recent 1QFY24 results announcement, it is not spared the prevailing macro-economic headwinds.
Key takeaways from the discussion was that the weakness in its 1QFY24 motorcycles sales can be attributed to: (i) the credit tightening by motorcycle financiers to shield them from non-performing loans, and (ii) the slowdown in demand for mass-market models (135-cc and below). To counter these, HLIND will focus on premium models that fetch better margins and for which demand is still resilient.
The house is lowering ther industry sales volume to 585k units (from 670k units) and Yamaha sales volume to 287k units (from 330k units). For Jul 2024 -Jun 2025, we expect marginal improvement for both industry sales volume and Yamaha sales volume to 600k units and 290k units, respectively.
HLIND shared that the margin expansion it experienced in 1QFY24 came from: (i) favourable sales mix toward high-margin new models (i.e. Y15ZR SE, XMax 250 and Ego Gear) and increased sales of their premium models (i.e. NMax, XMax 250, NVX), (ii) progressive increase in motorcycles prices on average by 5% to pass on the rising cost of production, and (iii) reduction in lower-margin models production capacity in favour of the higher-margin models (current
Yamaha Motor production plant capacity to sustain at 70%). Recall, its net margin expanded to 10.5% from 9.3%, a year ago which HLIND expect to sustain it for the remaining quarters.
The bike assembler also shared that associate Yamaha Motor Vietnam challenging business environment will likely persist due to saturated motorcycles market there as the fourth largest in the world. It recently put to Vietnam market, Yamaha Exciter 155 (with new ABS antilocking system which is a highly requested feature) which received a good response and will continue to work out with its principal, Yamaha Japan to introduce more new models there to maintain competitiveness.
Hence, Kenanag will cut its FY24-25F net profit forecasts by 8% and 10%, respectively, to reflect weaker motorcycle sales volumes as mentioned, partially offset by margin improvement from premium models.
