Ng likes the prospects seen in Hong Leong Asia’s two main business segments: its powertrain solutions division, China Yuchai International, and its building materials business.
Hong Leong Asia’s 48.5%-owned China Yuchai International, which also saw strong 1HFY2025 results, remains the group’s core earnings driver, the analyst notes. During the six months, China Yuchai’s unit sales rose by 29.9% y-o-y while segment profit was up by 56.4% y-o-y. The growth was attributed to market-share gains, export strength and rising demand for cleaner engines.
At the same time, the group’s building materials division remains a “steady earnings base”. While revenue dipped slightly to $310 million, its order books are supported by Singapore’s strong pipeline of public housing and infrastructure projects, as well as improving activity in Malaysia. The group’s investments in automation, digital batching and alternative fuels are also expected to lift the segment’s margins and reinforce its role as a support against cyclical fluctuations in China.
Ng also likes Hong Leong Asia’s clear medium-term strategic roadmap. In her view, the group’s priorities on accelerating green powertrain development, driving productivity through automation, expanding its regional footprint in Southeast Asia and maintaining disciplined capital allocation underpin a multi-year path of expanded margins, stronger free-cash-flow generation and higher returns.
See also: uSMART initiates ‘buy’ on Jumbo Group with target price of 34 cents
Ng’s initiated target price of $2.75 is based on a sum-of-the-parts (SOTP) valuation and implies an equity value of $2.75 per share. This reflects an upside of 25.6% after applying a holding company discount of 20%.
“At $2.75, this would imply 19.8 times FY2026 P/E and 2% dividend yield,” says Ng.
Key risks to her call include cyclical demand in truck and construction markets. Other risks include evolving regulatory requirements for clean-energy powertrains, foreign exchange (forex) volatility in China and Malaysia and execution risk in the adoption of new technologies. Potential governance and operational uncertainty linked to ongoing regulatory matters in China are also downside risks.
Shares in Hong Leong Asia closed 8 cents higher or 3.57% up at $2.32 on Dec 19.
