We continue to like HLI for its robust business model, leading market position and decent earnings prospects across its business units. Coupled with generous payout that translates into yields of 4.8-5.2% in the next three years, we maintain our BUY call. Despite making no changes to our estimates, we raise our SOP-based TP to MYR10.00 (from MYR8.63, 13% upside) as we rollover our valuation to 2017 and up the target P/E for its motorcycle business to 12x (from 10x).
Vietnam is Yamaha’s growing market. Hong Leong Industries’ (HLI) Yamaha motorcycles franchise in Malaysia and Vietnam contributed >60% to FY15 (Jun) earnings, and there is still room for growth. Although local total industry volume (TIV) for motorcycles locally is declining, we understand that Yamaha has managed to keep its unit sales almost flat by taking market share away from its peers. Separately, prospects from its 24% stake in Yamaha Motor Vietnam Co Ltd (YMV) remains bright, thanks to Vietnam’s youthful population of 90m people and improving purchasing power overall. Room for improvements for its building materials unit. HLI is also a leader in building materials products. Its Guocera Holdings SB subsidiary is the largest ceramic tile manufacturer locally, and 40% of these tiles are exported. HLI currently has c.50% market share in the duopoly domestic fibre cement market. It exports 60% of its fibre products. We expect demand for building materials to remain firm, as it rides on the tail-end of the property boom cycle and the start of 1Malaysia Housing Programme (PR1MA). HLI’s exports remains competitive thanks to a weaker MYR. Its internal cost rationalisation exercise at its ceramic tiles and fibre cement plants may lower unit costs further. Yield appeal. While the challenging business outlook may only translate into a middling earnings growth of 5%/8.3% in FY17-18 respectively for HLI and thus does not look too exciting, we believe investors should not overlook the counter given its attractive dividend yield in a weak macroeconomic environment. The group’s resilient business model, coupled with its net cash position and strong cash-generating abilities, should allow the board to keep its >50% dividend payout (our forecast: 55%). This should translate into decent yields of 4.8-5.2% in the next three years. Reiterate BUY with a higher MYR10.00 TP (from MYR8.63). While we are keeping our earnings estimates unchanged, we roll over our SOP-based valuations to 2017 and raised our target P/E for its motorcycle business to 12x (from 10x), which increases our SOP-based TP to MYR10.00. The new TP implies 12.1-13.8x FY16F-18F EPS. We see upside potential to share price on the back of a P/E re-rating in a market currently short of good yield-generating firms that still offer earnings growth. Key risks to our call are lower-thanexpected sales, which will impact HLI’s earnings and a sudden weakness in the USD that may dampen its export sales.
This book is the result of the author's many years of experience and observation throughout his 26 years in the stockbroking industry. It was written for general public to learn to invest based on facts and not on fantasies or hearsay....
optimus9199
2,794 posts
Posted by optimus9199 > 2016-06-11 17:53 |
Post removed.Why?