PETALING JAYA: HONG LEONG INDUSTRIES BHD (HLI) motorcycle businesses in Vietnam and Malaysia will continue to contribute significantly to the company’s profitability going forward backed by strong consumer demand, according to RHB Research.
“HLI continues to prosper thanks to impressive contributions from its 24%-owned associate, Yamaha Vietnam.
“Yamaha Vietnam continued to churn out strong earnings following new product offerings that enjoy better margins, helped by a stronger local economy.
“Associate contributions in the nine-month financial results ended March 31 rose 37.2% year-on-year
“The good set of results were also contributed by the gradual improvement in sales volumes while cost pass-through helped recoup margins at Yamaha Malaysia,” the research house said while maintaining a “buy” call with a target price of RM11.10 on HLI in a report yesterday.
The Yamaha motorcycle franchise in Malaysia and Vietnam contributed more than 60% of HLI’s financial year 2016 earnings and RHB Research believed there was still room for growth, given the youthful 90 million population in Vietnam.
HLI associate companies are involved in the manufacture, assembly and distribution of motorcycles, motorcycle engines and spare parts, as well as the manufacture and sale of newsprint and related paper products.
However, RHB Research noted that higher production costs at the company’s fibre cement unit and weaker performance at its ceramic tiles unit had resulted in lacklustre performance at its building materials division in the recently announced nine-month results.
“Overall, the company reported decent earnings for nine months in the financial year ending June 30, despite flat earnings at most of its local operations.
“HLI nine-month results ended March 31 were within our expectations, making up 78% of our full-year earnings estimates.
“Apart from that, HLI’s building materials unit also has room for cost improvements and higher exports due to the weaker ringgit,” it said.
Following the commendable nine-month results, HLI has declared a dividend of 45 sen per share year-to-date.
“As HLI continues to deliver impressive financial performance thanks to a superb performance at Yamaha Vietnam, and satisfactory growth recorded at most of its local operations, it has declared a second interim single-tier dividend of 20 sen and special single-tier dividend of 10 sen.
“This brings the year-to-date dividend to 45 sen per share higher than 42 sen per share in the previous corresponding period,” it said.
The generous dividend payout was in line with RHB Research estimates, and translated to a decent yield of 4.6%.
Supported by healthy growth at Yamaha Vietnam, RHB Research made no changes to its original projections.
“Key downside risks are lower-than-expected sales that may reduce HLI’s topline and bottomline, while weakness in the US dollars could dampen export sales,” it said.
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