Stock Name: HIRO
Company Name: HIROTAKO HOLDINGS BHD
Research House: OSK
Hirotako Holdings Bhd
(Sept 6, RM1.23)
Trading idea at RM1.18 with target price of RM1.63: Hirotako has positioned itself as Malaysia's only safety equipment manufacturer. Compared with its peers, Hirotako is trading at a relatively cheap FY2011 price-to-earnings ratio (PER) of only 5.1 times against the sector average of 5.8 times, and our overall autoparts sector valuation of seven times (at mid-cycle PER).
Our recent discussions with management revealed that its prospects continue to be exciting going forward as it will see more revenue contribution from Perusahaan Otomobil Kedua Sdn Bhd (Perodua), having secured a new contract to supply Myvi airbags in FY2011.
We see this contract, together with other contracts spurred by new model launches, giving Hirotako's earnings a fillip and buoying its compound annual growth rate (CAGR) to 42.3% from FY2010-FY2011. Although the stock price has been running up since last year, we see still more upside for Hirotako given its attractive valuation, from which we derive a target price of RM1.63 based on seven times PER.
Over the past five years, it has been trading at a forward PER ranging from 2.2 times to 9.3 times and averaged at 4.7 times. It expects higher revenue contribution going forward from the Myvi airbag contract and the positive outlook for the overall industry, on top of its monopolistic hold on the safety equipment space.
We also like the stock's superior margins (relative to other autoparts makers) and its net cash position in the absence of any borrowings. Its balance sheet has been healthy, holding net cash for the last five years, which as at 1HFY2010 stood at RM89 million, representing 46% of its current market cap.
Its future capex needs will be minimal as we expect Hirotako to spend an average RM12 million over the next three years given the slew of vehicle launches going forward. Its return on equity (ROE) since 2008 has grown by double digits, and we envisage it to be consistent going forward. The stock also provides an attractive net dividend yield of 5.1%.
Given the low base effect in 1HFY2009, with vehicle sales expected to reach a record high in FY2010, Hirotako was able to register revenue of RM153 million for 1HFY2010, representing a revenue growth of 83.1% year-to-date and accounting for 48% of our full-year forecast. While we expect a slower half this year for overall total industry volume, Hirotako will benefit from additional contribution from the upcoming Proton Waja and the Nissan CKD Teana. ' OSK Research, Sept 6
This article appeared in The Edge Financial Daily, September 7 2010.
Company Name: HIROTAKO HOLDINGS BHD
Research House: OSK
Hirotako Holdings Bhd
(Sept 6, RM1.23)
Trading idea at RM1.18 with target price of RM1.63: Hirotako has positioned itself as Malaysia's only safety equipment manufacturer. Compared with its peers, Hirotako is trading at a relatively cheap FY2011 price-to-earnings ratio (PER) of only 5.1 times against the sector average of 5.8 times, and our overall autoparts sector valuation of seven times (at mid-cycle PER).
Our recent discussions with management revealed that its prospects continue to be exciting going forward as it will see more revenue contribution from Perusahaan Otomobil Kedua Sdn Bhd (Perodua), having secured a new contract to supply Myvi airbags in FY2011.
We see this contract, together with other contracts spurred by new model launches, giving Hirotako's earnings a fillip and buoying its compound annual growth rate (CAGR) to 42.3% from FY2010-FY2011. Although the stock price has been running up since last year, we see still more upside for Hirotako given its attractive valuation, from which we derive a target price of RM1.63 based on seven times PER.
Over the past five years, it has been trading at a forward PER ranging from 2.2 times to 9.3 times and averaged at 4.7 times. It expects higher revenue contribution going forward from the Myvi airbag contract and the positive outlook for the overall industry, on top of its monopolistic hold on the safety equipment space.
We also like the stock's superior margins (relative to other autoparts makers) and its net cash position in the absence of any borrowings. Its balance sheet has been healthy, holding net cash for the last five years, which as at 1HFY2010 stood at RM89 million, representing 46% of its current market cap.
Its future capex needs will be minimal as we expect Hirotako to spend an average RM12 million over the next three years given the slew of vehicle launches going forward. Its return on equity (ROE) since 2008 has grown by double digits, and we envisage it to be consistent going forward. The stock also provides an attractive net dividend yield of 5.1%.
Given the low base effect in 1HFY2009, with vehicle sales expected to reach a record high in FY2010, Hirotako was able to register revenue of RM153 million for 1HFY2010, representing a revenue growth of 83.1% year-to-date and accounting for 48% of our full-year forecast. While we expect a slower half this year for overall total industry volume, Hirotako will benefit from additional contribution from the upcoming Proton Waja and the Nissan CKD Teana. ' OSK Research, Sept 6
This article appeared in The Edge Financial Daily, September 7 2010.
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