Earnings Watch (Malaysia): HL Industries, Malaysia Marine and Heavy Engineering

Hong Leong Industries: Decent Performance

Hong Leong Industries (HLI) 1Q 2024 results are out (June-Sep 2023) and decent. First of all, revenue grew by 9% to RM836 million in 1Q 2024 from RM767 million in 4Q 2023. This is good but it did decline by 5.5% from a year ago due to lower sales of motorcycles as market demand weakens amid higher Malaysia interest rates.

However, HLI improved its operational efficiency, with a profit margin improving to 14.1% in 1Q 2024 from 11.9% in 1Q 2023. Operating cashflows also increased to RM134.8 million from RM97.6 million over the same period, reflecting the better sales of higher-margin motorcycles.

Market players currently have HLI at an investment call of Buy and an average target price of RM11.40. This implies an upside of 23.8% from its current share price of RM9.21.

Why this matters to you: HLI is a proxy to the motorcycle industry in Malaysia. You would have to watch out for the impact of higher interest rates on motorcycle sales for 2023 and 2024.

Malaysia Marine and Heavy Engineering: Disappointing

Malaysia Marine and Heavy Engineering (MMH) 3Q 2023 (June-Sep 2023) results can be categorised as disappointing. Revenue amounted to only RM638 million, a full 40% decline from a quarter ago. It continues to suffer losses of RM105 million in 1Q 2023 but is lower -RM389 million in 2Q 2023.

The story here is that MMH is recognizing loss provisions for its ongoing projects now as it faces higher raw material costs and project delays. We can see this happening in its accounts receivables declining from RM1.4 billion in 2Q 2023 to RM1.2 billion in 3Q 2023. You see, MMH was awarded project contracts 3 years ago that did not anticipate the higher raw material costs.

The market currently has an Overweight investment call on MMH and an average target price of RM0.64. This is an upside of 36.6% from the share price of RM0.47.

Why this matters to you: MMH results are garnering mixed results from the market. Some are positive, some are negative. However, not anticipating higher raw material costs is just poor risk management.