Loyalty Moat: How Hong Leong Industries Plans to Outlast the Chinese EV Surge

Despite intensifying Chinese competition, Hong Leong Industries Bhd (HLI) should be able to sustain its growth by expanding its Yamaha Genuine spare parts and higher-margin big-bikes businesses, and sticky brand loyalty. The Malaysian motorcycle market is currently undergoing a significant transformation, with numerous Chinese manufacturers entering the space with aggressively priced electric and internal combustion models. However, Kenanga Research remains optimistic about HLI’s resilience, citing record profits for the year and a strategic roadmap that focuses on quality, service, and brand equity rather than engaging in a race to the bottom on price.

Following record profits for the year, Kenanga Research said HLI remained well-placed to uphold volume and revenue growth, underpinning continued profitability amid ongoing expansion of Chinese motorcycle manufacturers in Malaysia. The research house highlights that while Chinese players are capturing the price-sensitive segment, they have yet to establish the same level of trust in after-sales support and long-term reliability that Yamaha enjoys. This trust is HLI’s primary defensive moat.

According to the research house, HLI’s spare parts business is seen as a strategic pillar supporting long-term earnings growth and sustainability. The aftermarket for motorcycle parts in Malaysia is vast, fragmented, and often dominated by non-genuine, lower-quality alternatives. By controlling this segment, HLI can ensure that customers remain within the Yamaha ecosystem throughout the lifecycle of their vehicles, thereby reinforcing brand loyalty and generating recurring revenue streams that are less volatile than new unit sales.

The company aims to introduce a second Yamaha Genuine Parts brand, positioned as a value-for-money alternative, to capture a larger share of the Malaysian motorcycle spare parts market, which is worth an estimated RM2bil to RM3bil annually. This dual-brand strategy is a sophisticated response to market pressure. Instead of ceding the budget-conscious customer to third-party aftermarket suppliers, HLI will offer a certified, lower-cost option that still guarantees quality and compatibility.

“This should enable HLI to compete more effectively against lower-priced aftermarket and non-genuine spare parts, which currently account for a substantial portion of the market,” Kenanga Research said. “Given that HLI’s current spare parts revenue is estimated to be in the region of RM200mil, even a modest increase in market penetration could provide a meaningful growth runway.” By legitimizing the value segment, HLI protects its premium brand from dilution while still capturing the volume necessary to achieve economies of scale in its supply chain.

As part of its growth strategy, HLI also intends to expand its big bike segment, which currently makes up 25% of the Malaysian market, from RM300 million to RM500 million in revenue over the next two to three years. The big bike segment is particularly attractive because it is less sensitive to price fluctuations and more driven by lifestyle, status, and performance. These customers are typically less likely to switch to newer, unproven Chinese brands, preferring the established heritage and community associated with Yamaha’s larger displacement models.

The plan is to start with completely built-up (CBU) big bike imports with smaller niche volume, while pushing for completely knocked-down (CKD) localisation for its higher volume top selling models, the research house said. Localizing production for high-volume models will reduce costs through tax incentives and lower logistics expenses, allowing HLI to price these premium bikes more competitively without sacrificing margins. This hybrid approach allows the company to test the waters with exclusive CBU models before committing to the capital expenditure required for CKD assembly lines.

In the next two to three years, HLI is set to introduce 15 to 17 models with attractive pricing within their respective target market range. This aggressive product rollout is designed to fill every gap in the portfolio, ensuring that whether a customer is looking for a entry-level commuter, a mid-range family bike, or a high-performance sport tourer, there is a Yamaha option available. This breadth of choice makes it difficult for competitors to poach customers who might otherwise consider switching brands due to limited model availability.

Additionally, its digital customer loyalty reward platform, coming online by the end of 2026, is expected to further increase brand loyalty and retain market share, Kenanga Research said. In an era where data is currency, this platform will allow HLI to track customer behavior, predict maintenance needs, and offer personalized incentives. By integrating the ownership experience into a seamless digital ecosystem, HLI creates high switching costs for customers, making it inconvenient and less rewarding to move to a competitor that lacks such infrastructure.

While Chinese motorcycle players have expanded aggressively in Malaysia, it said demand is largely concentrated among price-sensitive customers, and a sizeable customer segment still prefers Yamaha motorcycles due to their proven quality, reliable after-sales service, and strong resale value. Resale value is a critical factor in the Malaysian market, and Yamaha’s dominance here acts as a powerful deterrent against switching to newer brands whose long-term depreciation curves are unknown.

Meanwhile, HLI’s non-core tiles segment should see improved earnings, as it expands into large-format porcelain slabs and doubles manufacturing capacity. The construction industry is shifting toward premium, aesthetically versatile materials, and large-format slabs are at the forefront of this trend. They offer fewer grout lines, a more seamless look, and greater durability, appealing to both residential and commercial developers.

“Large-format porcelain slabs command higher selling prices and better margins, while strengthening Guocera’s position in the premium building materials segment,” the research house said. By moving up the value chain, Guocera is distancing itself from the commoditized low-end tile market where competition is fiercest and margins are thinnest.

The tiles division currently generates about RM220 million to RM250 million in annual revenue. While this is a significant contribution, it has historically been a drag on overall group performance due to rising energy and raw material costs. The pivot to large-format slabs is intended to reverse this trend by focusing on products where Guocera can command a premium based on technology and design rather than just volume.

“Currently contributing less than 5% of total sales, large-format tiles are targeted to account for approximately 25% of total sales within the next three years.” This rapid scaling indicates a strong confidence in market demand and Guocera’s ability to execute on production efficiency. The expansion is not just about sales mix; it is about operational leverage. Higher-margin products will help absorb fixed costs, improving the overall profitability of the division.

Kenanga Research noted that Guocera’s expansion is aimed at enhancing value for a later divestment, as it had been at risk of falling into losses due to rising operating costs. By turning the tiles division into a profitable, high-growth entity focused on premium products, HLI is preparing it for a potential sale or spin-off that could unlock significant shareholder value. This strategic cleanup allows the group to focus its core resources on the motorcycle business while maximizing the return on its non-core assets. It has maintained an “outperform” call on the stock with an unchanged target price of RM21.

Kenanga Research noted that it continues to favour HLI as a strong proxy to the booming gig economy, its association with the market-leading Yamaha motorcycle brand in Malaysia, and a solid war chest with net cash of RM2.1 billion. The gig economy, driven by food delivery and e-commerce logistics, provides a steady baseline demand for durable, low-maintenance motorcycles. As long as platforms like Grab and Foodpanda continue to grow, HLI will have a reliable customer base that prioritizes uptime and total cost of ownership over initial purchase price. Combined with its strong balance sheet, which provides ample flexibility for investment and weathering economic downturns, HLI is well-positioned to navigate the turbulent waters of the evolving automotive landscape.