Since the announcement, Hong Leong Asia’s shares have trended steadily higher, closing at $3.43 as at Feb 2.
“While the timeline for the IPO has yet to be determined, we believe the market will value the ability to have a look-through valuation for China Yuchai International,” says UOB Kay Hian analyst Adrian Loh, who has a “buy” call on Hong Leong Asia.
“In its draft prospectus, we note that MGP’s financials and profitability have been, and likely will continue to be, one of the major drivers of China Yuchai International’s profitability,” he adds. In his Jan 29 report.
In 9MFY2025, MGP generated RMB5 billion ($914.4 million) and RMB762 million in net profit, which implies a net margin of 15% and substantially higher than China Yuchai’s own net profit margin of 3.9% for the 1HFY2025.
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Loh further notes that MGP’s net profit rose by 77% y-o-y in 9MFY2025, accelerating from the 35% y-o-y growth seen in 2024, underscoring the business’ strong growth profile.
Given MGP’s strong numbers, Loh believes the market will have to upgrade its valuations.
He has upgraded Hong Leong Asia’s target price to $4.20 from $2.82. The higher target is now based on an FY2026 P/E of 15 times, from his previous “conservative” target of 12 times. The new P/E multiple may still be conservative relative to the Hang Seng Index’s (HSI) consensus FY2026 P/E of 12.1 times.
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OCBC Investment Research analyst Ada Lim has also upped her fair value estimate to $3.50 after Hong Leong Asia’s share price exceeded her previous estimate of $3.10.
“Hong Leong Asia’s share price has returned 31.3% since we initiated coverage in August 2025 (based on a last close price of $3.15 as at Jan 28),” she writes. “Hong Leong is currently trading at an elevated forward 12-month price-to-book (P/B) ratio of close to 2 times, but we think this is supported by an increasing return on equity (ROE), which we are forecasting to expand from 9.1% in FY2024 to 10.2% and 10.6% in FY2025 and FY2026, respectively.”
Like Loh, Lim sees further value unlocking underway with the proposed listing.
“We have previously highlighted Hong Leong Asia’s data centre gensets as one of three main growth drivers for its powertrain solutions segment, supported by increasing data centre demand and continued proliferation of artificial intelligence (AI) use cases,” she writes in her Jan 29 report.
“Given the vast potential of the business, Hong Leong Asia (through China Yuchai International) is expected to retain significant control over MGP post-listing, with the injection of fresh capital likely deployed to support future development of its genset offerings,” she adds.
Lim, who has maintained her “buy” call, has retained her estimates ahead of Hong Leong’s FY2025 results, which are slated to be announced after trading hours on Feb 25.
Looking ahead, Loh believes China’s policies - including equipment renewal subsidies, the phasing out of National 4 heavy-duty trucks and higher infrastructure investments abroad - will continue to underpin China Yuchai International’s earnings.
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“The latter policy in particular should boost demand for heavy-duty trucks, heavy machinery and logistics solutions in our view,” he says.
“Another key economic and industrial tailwind is higher demand from global data centres for large-bore engines,” he adds.
Like Lim, Loh sees data centres as a key growth engine. “The global proliferation of data centres, especially for AI and edge capacity, has resulted in higher demand for standby multi-hour backup power, thus diesel gensets remain the default for Tier 3/Tier 4 sites.”
“According to JLL’s 2026 Global Data Centre Outlook, global data centre capacity is expected to increase from around 103GW to 200GW by 2030, an almost 100% growth in capacity over the next five years, underpinned by demand from AI, cloud, enterprise digitalisation, and hyperscale users,” he notes.
Loh has maintained his earnings estimates.
Separately, Lim expects Hong Leong Asia to benefit from firm construction demand in Singapore in 2026, which should support order book growth for its Building Materials division. She also highlights the ongoing Equity Market Development Programme (EQDP), which should provide an additional tailwind for its share price performance.
Lim also sees potential for Hong Leong Asia to further enhance shareholder returns, either by acquiring synergistic, accretive businesses, or by increasing dividend payouts, backed by a healthy balance sheet and net cash position.
As at 10.58am, shares in Hong Leong Asia are trading 8 cents lower or 2.332% down at $3.35.
