YHI International Ltd - CGS-CIMB Research 2018-09-17: The World Is Its Market


YHI International Ltd - The World Is Its Market

  • YHI International Limited (YHI) is a global distributor of automotive and industrial products. The Yokohama brand of tyres was its major revenue contributor in FY17.
  • YHI also has an alloy wheel manufacturing business. YHI has restructured its alloy wheel manufacturing business but this business continues to face pressure from high raw material cost and possible tariff impact.
  • YHI trades at a historical FY17 P/BV of 0.48x against ROE of 3.52%. Its net gearing at end-FY17 was 0.12x.

Company background

  • YHI International Limited (YHI) is a global distributor of automotive and industrial products, and a trusted brand name in alloy wheels manufacturing as an Original Design Manufacturer (ODM). 
  • Listed on the Mainboard of the Singapore Exchange on 3 Jul 2003, YHI’s international presence spans 100 countries through 33 subsidiaries and one associated company located in Asia Pacific, North America and Europe.
  • At present, YHI serves more than 5,000 customers globally.

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Distribution business

  • YHI distributes tyres, alloy wheels, automotive and industrial batteries, as well as golf and utility buggies. The key tyre brand carried is Yokohama. The group also has its own tyre brand, Neuton Tyres.
  • In FY17, the distribution business accounted for 73% of revenue, 80% of operating profit and generated an operating profit margin of 3.0%. By geography, ASEAN accounted for 43% of FY17 distribution revenue.

Manufacturing business

  • In FY17, manufacturing accounted for 27% of revenue, 20% of operating profit and generated an operating profit margin of 2.0%, YHI incurred losses in its manufacturing business in China due to restructuring costs as it ceased operations in Shanghai in FY17.
  • YHI currently has three alloy wheels manufacturing plants located in Suzhou (China), Taoyuan (Taiwan) and Malacca (Malaysia), with a total production capacity of 2.6m units p.a. YHI also has its own proprietary alloy wheel brand, Advanti Racing.

Management’s comments on 2H18 outlook

  • For the manufacturing business, YHI has guided that it expects margin erosion in 2H18 due to the high aluminium prices globally. In addition, the company thinks the possible tariffs announced by the US could negatively affect the wheel manufacturing business in China.
  • As for the distribution business, YHI expects the intense competition in tyre prices to continue in view of the low rubber prices and the prevailing overcapacity in the tyre market globally.
  • YHI has also guided that it will continue to execute its “3R” reduction policy to reduce inventory, reduce account receivables and reduce operating costs.

Historical valuations

  • YHI trades at a historical FY17 P/E of 13.7x, P/BV of 0.48x (ROE: 3.52%) and dividend yield of 3.7%. Although YHI does not have a formal dividend policy, the company has paid dividends in the last five years.
  • As at end-FY17, its net gearing was 0.12x.

William TNG CFA CGS-CIMB Research | https://research.itradecimb.com/ 2018-09-17
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* This Eyes On the Ground report represents a preliminary assessment of the subject company, and does not represent initiation into CIMB's coverage universe. It does not carry investment ratings and CIMB does not commit to regular updates on an ongoing basis.