Value Buy: Hirotako

May 7, 2008

Hirotako Holdings Berhad, an investment holding company, engages in the manufacture and sale of automotive components in Malaysia. It offers safety restraint systems, including seat belts, airbags, and steering wheels to original equipment manufacturers. The company also provides acoustic, thermal, and composite materials, such as noise dampers, sound insulation and absorption products, interior trims, and electrical components. In addition, it offers precision metal forming and machining components and services, including steering wheel, air compressor, shock absorber, and seat belt; components for electrical and ventilation fans; components for audio and video, air conditioner, washing machine, refrigerator, gas cooker, and television cathode ray tubes; and CNC machining components, such as steering and motor shaft.


Hirotako Holdings Bhd is the only airbag manufacturer in Malaysia. Any vehicles which want to install an airbag (import/local) must go through Hirotako.

The company is building up its cash coffer which will be used for potential acquisitions. Currently, it has 47 million in cash or RM 0.28 / shares. Its operating margin is above 20%.
Hirotako’s performance relies on Proton’s and Perodua’s performance. Proton contributes about 40% to Hirotako’s revenue. Its other customers ­mostly for seat belts are Perodua, Toyota, Honda, Naza, Mercedes-Benz and BMW. Only Proton currently uses Hirotako’s airbags.


Hirotako’s reliance on the local automobile industry is due to the arrangement between Hirotako and Swedish company Autoliv AB, which prevents Hirotako from exporting its airbag modules to other countries. Despite this setback, there is room for growth. At the moment, less than 50% of the passenger vehicles sold locally is equipped with airbags. The increasing demand for safety features in passenger vehicles will benefit the group. Autoliv is Hirotako’s partner in Autoliv Hirotako Safety Sdn Bhd, in which Hirotako holds 51% equity. Autoliv Hirotako is the country’s largest seatbelt maker and also manufactures steering wheels. Also, Hirotako supplies acoustic products through its wholly owned subsidiary Hirotako Acoustic Sdn Bhd. Hirotako Acoustic is involved in the manufacture of acoustic and thermal control products used in automobiles. Hiratako has a technical tie-up with Swiss Rieter Automotive International AG for the transfer of technology.


Hirotako has been paying dividends of four sen per share. At the current price of 55 sen, the company has a dividend yield of 7.25%. It has P/E around 10, fully loaded with cash for acquisition, no debt, low Price/Book Value and actively buying back its own shares.