Posted by sosfinance > 2019-10-01 23:37 | Report Abuse

This is like a "biz fixed deposit:, while getting a DY of 4.6% p.a., biz will continue improving until one fine day (like how Aeoncr went up from 11 to 19 before the bonus issue, where DY from 4.9% to 2.7% when the share price rises with the profits).

The volume for the past one year is very very low, soon when the profits improve gradually (say double digit) and the PE (net of cash) is so low i.e. below 5x, fund manager can then justify to pay higher price for growth.

At the moment, market cap is RM3.4b, net of cash is about RM2.3b, whichi is equate to PE of about 7x, which is quite low. Then when prices goes up, DY will drop to 2.5%, i.e. with price up from 10.38 to 18.00, like Aeoncr. The question is, do we have that patience?

Posted by Fabien "The Efficient Capital Allocater" > 2019-10-02 18:14 | Report Abuse

Just updated based on latest annual report

HLIND analysis

Price 10.30
Latest earnings 1.042
Average 5 years earnings 0.7367
NTA 5.18
Revenue growth 9.65%
Earnings down 3.31%
Profit margin 15%
EBIT margin 18%
ROE 25%
ROIC 62%
DPS 50sen
Dividend yield 4.85%
Net cash 3.19 (30% of market cap)
Latest FCF 481mil (6% growth)
Average 5 years FCF 348mil

Valuation
PER 9.88
Ex cash PER 6.83
P/BV 1.99x (ROE consistently around 25%, implied P/BV should be 2.5x)
P/FCF 9.30x
Cash yield 10.75% (triple of risk free rate)

Conservative estimates:
Assumed FCF Growth
Year 1-3 2%
Year 4-6 1%
Year 7-10 0%
Discount Rate 10%
FCF/share 14.48 (40% upside)


Assumed FCF Growth
Year 1-3 3%
Year 4-6 2%
Year 7-10 1%
Discount Rate 10%
FCF/share 15.32 (50% upside)

Posted by Fabien "The Efficient Capital Allocater" > 2019-10-02 18:18 | Report Abuse

Forgot to update latest net cash position. Was using 800mil. Latest net cash is whopping RM1bil.

FCF/share range based on above assumptions:
15.12 - 15.96

Posted by SilverHawk > 2019-10-02 22:29 | Report Abuse

Let's see it come to 11 and 12 level first , then slowly move 。。。

Posted by x3mg33 > 2019-10-03 17:51 | Report Abuse

Despite all the analytics of how good the company is.... there’s no legs

Posted by sosfinance > 2019-10-04 22:30 | Report Abuse

Despite interest rate may drop, some bank gave FD 12 months at 4.28% p.a.

If there is a daily price chart for FD, I wonder if anyone will check for fluctuation? When analytics is good, price is bad, load up some. Unless our friend wants to take it private at this price. So, what is so bad of holding a FD with 4.6% p.a. and a good chance the price will catch up nearer to the value of the company.

FROM THE STAR

In an exchange filing yesterday, the consumer and industrial product manufacturer noted it incurred a RM172 million one-off impairment for the investment in its newsprint business via its 23.65% stake in Malaysia Newsprint Industries Sdn Bhd.

It 4Q18 earnings benefited from a RM60 million impairment write-back from the same investment while profit from the motorcycle business helped offset the lower profit from an associate company.

AFTER ADJUSTMENT OF THE ABOVE ONE-OFF IMPAIRMENT AND WRITE BACK

FYE 2019 - RM327M
FYE 2018 - RM275M
FYE 2017 - RM280M
FYE 2016 - RM247M

Posted by antoniomc27 > 2019-10-06 20:38 | Report Abuse

sosfinance, Fabien, thanks for your comments, I learn a lot from you.

I have some questions:

1) do you know of any KLSE stock screener that allows you to see FCF/share or P/FCF?

2) let's say a very ugly global recession strikes. Unemployment goes up, interest rates go down, a lot of companies close shop. How do you think that would affect HLIND? I do not know if motorbike sales would experience a huge drop, or if it would just be mild because people that before would have considered a Perodua/Proton would settle for a bike instead.

Posted by antoniomc27 > 2019-10-06 21:02 | Report Abuse

I get the following two Fair Value estimates, using Gordon Growth model:

FV = FCFE /(r-g)
FCFE = 350-440
r = 7.7%
g = 1-3%

Conservative -> FV = 350 / (7.7%-1%) = 5224 mio ->RM 15.93 / share
Normal -> FV = 400 / (7.7-1.5%) --> RM 19.67 / share
Optimistic -> FV = 440 / (7.7-2%) = RM 23.54 / share

Fabien please help, I am surely doing something wrong, or else this model is utter bullshit, haha.

Posted by antoniomc27 > 2019-10-06 22:08 | Report Abuse

Why in this article (just a year ago) the author says 200million FCF, while Fabien gets more like 350-450?

Why does it assume WACC = 7.7%? does WACC equal divident paypout in a company with no debt? And in such case why taking 7.7%, when the dividend yield has been more like 4-5% in past years?

https://seeking-alpha.com/2018/07/28/hong-leong-industries-bhd-rm13-31-thanks-mat-rempit/

Posted by RainT > 2019-10-07 19:30 | Report Abuse

Wah

sky high target share price

Posted by Fabien "The Efficient Capital Allocater" > 2019-10-07 19:59 | Report Abuse

Recent FCF already above 400mil (u can cross check from annual reports)

2013 - 158m
2014 - 148m
2015 - 182m
2016 - 280m
2017 - 344m
2018 - 452m
2019 - 481m

take latest 5 year average = 348m

P/(5 year average FCF) = 9.3 times or cash flow yield of 10.75%

Posted by Fabien "The Efficient Capital Allocater" > 2019-10-07 20:02 | Report Abuse

FCF/share range based on above assumptions:
15.12 - 15.96

my estimates based on very conservative assumptions of minimal growth and high discount rate of 10%

your conservative estimates kind of converge with mine as well.
Conservative -> FV = 350 / (7.7%-1%) = 5224 mio ->RM 15.93 / share

Posted by edmonster3 > 2019-10-09 16:36 | Report Abuse

Next year flat earnings???

Posted by RainT > 2019-10-09 16:52 | Report Abuse

@fabien

yes HLIND cash is very good undeniable

but that can make the share price go up? can make the company sales & profit better and grow exponetially ?

Posted by antoniomc27 > 2019-10-09 23:25 | Report Abuse

oh yes, Thanks a lot for your answer Fabien. I now understand better the company. The article I shared is a very good and informative article, and the guy had a TP of 13.31 before having 2018 and 2019 FCF datas, which soar beyond 400 mill. Indeed RM 15.xx is a very realistic FV.

Posted by edmonster3 > 2019-10-10 09:30 | Report Abuse

Read the la
test annual report

Posted by RainT > 2019-10-16 09:44 | Report Abuse

alreday read the recent annual report

just same as the prior annual report

not much special information

but notice that Vietnam motorbike sales is just contribute small portion to HLIND profit & sales

Posted by sosfinance > 2019-10-16 23:33 | Report Abuse

Copied from @Fabien of HLI's FCF

2013 - 158m
2014 - 148m
2015 - 182m
2016 - 280m
2017 - 344m
2018 - 452m
2019 - 481m

Total cash flow about RM2.045b. Dividend payout ratio is 50%, hence, balance is about RM1.023b accumulated cash, which is equates the net cash balance @ 30 June 2019, RM1.1b.

Going forward, with a FCF of about say, average of RM450m (next 3 years), cash flow will continue to grow another RM1.7b. HLI will likely, have a special dividend payout (100%) of RM1.00 to RM1.50 per share on top of the regular dividend of RM0.50. More importantly, HLI can maintain its earning growth.

Posted by Fabien "The Efficient Capital Allocater" > 2019-10-19 19:25 | Report Abuse

Any earnings growth would translate into FCF growth, considering of their low capex requirement.

Their return on capital has been consistently high, at or above 25%

Posted by x3mg33 > 2019-10-20 10:26 | Report Abuse

Despite how good the counter is presented by historical and future prospect and earnings.... management needs to be more proactive to drive the share price to potential levels. All I see for the past years and having attended their AGMs.... management is not one bit excited about looking after shareholders interest and value. They are just not interested in share price enhancement. One can just open their historical share prices and judge for themselves on this. Cash vault is building up by the day but the counter remains undervalued. So say what you want about the counter and praise how impressive and robust the numbers are but until management can translate this into its true value.... one can just sit and stare at a prize. I have been holding this share for many years now and still believe in its potential.... just not how management and the BOD want you to share their wealth.

Posted by PaulNewman > 2019-10-20 10:43 | Report Abuse

MPI might be a better play. You have the same investment thesis; great cash flow, pile of cash on the books and the same parent company. What’s better is MPI is in an industry that could see potential growth going forward

Posted by x3mg33 > 2019-10-20 12:40 | Report Abuse

I posted 2 opinions earlier this morning and it seems that one of it has been deleted, but sure if it’s done deliberately. Anyway, I was merely saying that management of HLIND should be more proactive in putting the cash to better use as oppose to leaving it to build up. Suggest that management do something similar like Nestle recently announcing to reduce its cash vault through either share buy back or special dividend. Cash left unused is poor cash management. That’s a fact.

Posted by sosfinance > 2019-10-20 14:50 | Report Abuse

Dividend has been growing from 25 sen to 50 sen over the past 5 years. Assuming profit doubled in next 5 years, using the same existing PE of 10x, you will get about say RM20 per share + average dividend (growing from 50 sen to 100 sen), total average return together with dividend is about 21% p.a. CAGR.

On a conservative note, you may get 16-20% p.a. CAGR. If market sentiment is good, maybe this counter may enjoy PE of 15x instead of 10x. Actually the choices available is simple, BUY or DON'T.

Posted by antoniomc27 > 2019-10-20 15:42 | Report Abuse

x3mg33 Amen

Posted by NOBY > 2019-10-21 10:08 | Report Abuse

I like the numbers but I m not too excited about the Vietnam associate's prospects which has been on the decline since 2017. Q42019 especially showed a big drop in associate earnings with no explanation (maybe Honda is eating more of their market share?). The Vietnamese gov is putting measures to reduce the number of motorcycles on the roads. Q1 and Q2 2019 numbers already showed a slowdown in the motorcycle market there with a decline in sales after 4 consecutive years of growth.

https://vietnaminsider.vn/vietnams-motorcycle-sales-decreased-in-q2-2019/

Motorcycle sales in Malaysia should see steady growth but nowhere near double digits. FY19 was probably spectacular due to a short period in Q1 and Q2 after GE that saw GST zeroised for 3 months spurring a spike in buying. I think it may normalize moving forward.

Just my 2 cents but I m putting it on my watchlist for now.

Posted by RainT > 2019-10-21 21:35 | Report Abuse

ban motorbike in Hanoi by 2030??

its impossible

then how the people move around ? by cycling , haha

Posted by SilverHawk > 2019-10-23 17:41 | Report Abuse

Move up silently despite weak KLSE and weak Vietnam sales, maybe hint that :
1. Current price still deep undervalued.
2. Malaysia sales is still solid with room to grow.
3. Dividend payout to be increased.
4. Vietnam recovery is to be seen in 6 months time (hopefully) with new Vietnam CEO just in place.

Posted by Fabien "The Efficient Capital Allocater" > 2019-10-23 21:52 | Report Abuse

I like free cash flows

Posted by SilverHawk > 2019-10-24 10:39 | Report Abuse

Perfect eleven again 。。。

Posted by sosfinance > 2019-10-24 19:07 | Report Abuse

@Fabien, if I may ask, where did you extract the FCF of HLI, it grow from RM158m to RM481m, about 3 times in six years, this is really high growth (2013-19) similarly the dividend paid doubled from RM80m to RM157m (CAGR 12%) in the same period, that is not bad at all. Volume still pathetic at 55,000 today. (equivalent to Malaysia stock market volume, pathetic)

Posted by Fabien "The Efficient Capital Allocater" > 2019-10-24 22:21 | Report Abuse

Extracted from Annual Report. Lol

Posted by sosfinance > 2019-10-25 07:59 | Report Abuse

@Fabien, just wondering why the FCF vs PATMI have a huge difference of RM500 mil for 2013-2019.

Posted by perangbrown > 2019-10-31 11:33 | Report Abuse

Hong Leong Industries Bhd’s net profit for the 2019 financial year ended June 30, 2019 fell to RM327.08 million from RM334.6 million in the same period last year.

Revenue, however, rose to RM2.75 billion from RM2.5 billion previously.

Posted by RainT > 2019-11-02 12:31 | Report Abuse

failed to break 12.00

Posted by sosfinance > 2019-11-05 13:36 | Report Abuse

@perangbrown, FYE2018 included a RM60m write back, the normalised PATMI is RM275m for FYE2018. As for FYE2019, the PATMI is RM327m, an increase of RM52m or 19% depite share of profit in Vietnam dropped significantly.

Posted by lching > 2019-11-06 12:12 | Report Abuse

icon did you attend HLI AGM this morning?

Posted by Fabien "The Efficient Capital Allocater" > 2019-11-06 16:47 | Report Abuse

even at very conservative growth assumptions of 1-3%, HLI is worth at least RM15

Posted by Rwkl > 2019-11-06 18:46 | Report Abuse

During the AGM, a prominent shareholder from i3 mentioned the possibility of $2 eps in a couple of years.
Saliva dropped. Hope he is right......

Posted by Fabien "The Efficient Capital Allocater" > 2019-11-11 16:35 | Report Abuse

1Q results should be out within this week

Posted by x3mg33 > 2019-11-11 19:04 | Report Abuse

Would be interesting to see the results

Posted by SilverHawk > 2019-11-11 21:13 | Report Abuse

About 85M net profit

Posted by shpg22 > 2019-11-13 11:27 | Report Abuse

This coming interim dividend should be raised from 15 to 17 cents.

Posted by x3mg33 > 2019-11-13 11:46 | Report Abuse

17c sounds about right in expectation. Anything above this is a bonus

Posted by remus > 2019-11-13 13:08 | Report Abuse

big drop! bad QR .... ?!

Posted by x3mg33 > 2019-11-13 16:33 | Report Abuse

relax brothers.....if you hold this counter long enough, you will understand the price is well controlled. Cash rich company what is there to worry?

Posted by x3mg33 > 2019-11-13 16:36 | Report Abuse

prices usually suppressed on earnings reporting month.....management controls it internally....has always been the case. One just have to look at the historical prices during earnings reporting month to understand this better.

Posted by Fabien "The Efficient Capital Allocater" > 2019-11-13 17:33 | Report Abuse

i am hoping for a 20sen dividend

Posted by remus > 2019-11-14 14:38 | Report Abuse

hi x3mg33, can explain more, why HLI mngt want to suppress the price?

Posted by kingJ > 2019-11-14 15:22 | Report Abuse

Want to make it private?

Posted by remus > 2019-11-14 15:54 | Report Abuse

earlier this year was down to 8.50; if want to privatize, should have done it long time ago ....