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The Star Online, Published 28 June 2023
PETALING JAYA: Hong Leong Industries Bhd’s (HLIB) sustainable profit growth, driven by the gig economy, strong cash flow and cash pile as well as divestment opportunities make the counter worth considering, says a research house.
The company is a proxy for the gig economy in Malaysia as the Yamaha motorcycles, that perform the last mile delivery, are exclusively made and distributed by the company, according to Kenanga Research.
It expects the number of workers in the local gig economy to increase to some 4.9 million in 2025 from 4.3 million in 2022 with some 70% of them likely to be involved in the online food delivery, parcel hailing and eCommerce segments.
This, in turn, will fuel demand for HLIB’s motorcycles.
The Yamaha brand is the market leader for motorcycles in the country, controlling about 49% of market share at present.
Demand for motorcycles is set to remain robust moving forward.
Parcel hailing riders, 93% of whom use motorcycles, are estimated to reach 90,000 active riders by 2025 from 70,000 active riders in 2022, which is a much faster expansion compared with the growth trajectory of the local motorcycle total industry volume (TIV), which has a compounded annual growth rate (CAGR) of 4.4%.
“We estimate the motorcycles TIV to reach another record high of 670,000 units (up 3%) and 720,000 units (up 7%), for financial year 2024 (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,” Kenanga Research said in a report yesterday.
The replacement cycle for new motorcycle models is at a three-to-five year period compared with passenger vehicles at a five-to-seven year period.
“We believe another period of new model replacement cycle is due in the FY24 to FY25 period,” said the research house.
Apart from the sales growth potential, Kenanga Research likes HLI for its strong net cash position of RM1.63bil (or RM5 per share) as at end March, which could be deployed for earnings-accretive acquisitions.
Its dividend yield is also attractive at 7%.
Kenanga Research has an “outperform” call on the stock with a target price of RM11.40 a share, based on its FY24 price earning (PE) multiple of 12 times, which is at a one-time multiple premium to the passenger vehicle sector’s average forward PE of 11 times.
Growth could also come from HLIB’s plans to accelerate the development of its Yamaha quality service centres across the country and expand its parts distribution network to benefit from spare parts sales.
According to industry experts, the country’s automotive parts market is estimated to grow at a CAGR of 5% to RM44bil by 2025, driven by the used car and motorcycles market segments.
Kenanga Research projects HLIB’s net profit to sustain its growth trend in FY24 and FY25, rising by 7.3% and 8.4% respectively driven by demand for motorcycles, improved profit margins on easing of input costs and supply constraints, further helped by an effective tax rate of 24% from FY23 to FY25.
Source: https://www.thestar.com.my/business/business-news/2023/06/28/hlib-to-be-driven-by-gig-economy