Yamaha Vietnam keeps Hong Leong Industries on track
Yamaha Vietnam keeps Hong Leong Industries on track
Yamaha Vietnam’s strong earnings outweigh Hong Leong Industries Bhd.’s weaker building materials division.
As reported by thestar.com.my, on February 7, RHB Research maintained its buy call on Hong Leong Industries Bhd. (HLI)’s ticker with unchanged estimates and raised its target price by 14 per cent, from RYM10.60 to RM11.11 ($2.39 to $2.50).
The research house’s decision illustrates that HLI’s performance results for the first half of 2017 remained within its earlier expectations.
The report lauded HLI’s market leading robust business model, while identifying uneven business results across various segments.
“The company churned decent earnings despite a weaker performance at its building materials division, thanks to the stronger performance from its Vietnam associate,” the research house said in a note.
In contrast with the limited success at the groves of Hong Leong Yamaha Malaysia (HLYM) – a HLI’s subsidiary, where improving unit sales and sustaining margins amounted to a small-scale victory, Yamaha Vietnam’s strong revenue and profit offset other ailing associates.
During the 2016 financial year HLYM achieved a sales volume of 430,000 units, an 11 per cent drop on-year, marking the third consecutive year of shrinking industry demand. Yamaha Vietnam, in which HLI holds a 24 per cent stake as of the end of 2016, on the other hand, outstripped the 7 per cent growth of the total domestic market and sold 16 per cent more than last year, 776,182 units.
Higher production costs disturbed the operations of HLI’s fibre cement production arm and its troubled ceramic tiles business brought down the performance of the whole building materials division.
Largely attributable to Yamaha Vietnam’s performance, associate contribution was up 21.7 per cent on-quarter and 4.3 per cent on-year (first two quarters of the 2017 fiscal year).
The report added that HLI’s net cash position and strong cash-generating ability should allow the board to pay out 55 per cent of its earnings, offering over 4.6 per cent in yield.
Vietnam is currently Yamaha’s second largest market, with sales of 800,000 units in 2016 and strong prospects for 2017, riding on the dynamic local economy. Success in Vietnam is mirrored in the company’s decision to pick the country to debut its newest Janus scooter in August 12 and unveil the Yamaha 04Gen concept scooter in April 7, 2016.
Yamaha’s prospects in Vietnam remain rosy despite recently having to recall 110,000 Nozza Grande motorbikes for technical defects.
