HLA's powertrain segment is expected to remain its key earnings driver over FY2026 – FY2028, with segment profit forecast to grow 47% y-o-y in FY2026 on a better sales mix, driven by robust demand for high-horsepower (HHP) engines used in data centres and marine applications.
The analysts estimate HHP engine sales could contribute 15% – 19% of HLA's patmi in FY2026 – FY2028. Underpinning demand is rising AI capex from Chinese hyperscalers, estimated to grow from US$60 billion ($76.2 billion) in 2025 to US$80 billion in FY2026, representing a 33% y-o-y increase.
Beyond HHP engines, China's total diesel vehicle sales grew 16% y-o-y in 1QFY2026, with export growth outpacing domestic sales at 72% y-o-y, as Chinese original equipment manufacturers gain traction across ASEAN, the Middle East and Latin America.
On the building materials front, HLA completed its acquisition of YTL on April 21 for $90.7 million, implying approximately an FY2025 P/E of 4 times, based on the analysts’ estimates.
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YTL is one of only five HDB-approved household shelter steelwork suppliers in Singapore, which the analysts say gives the business high barriers to entry and two to three years of order book visibility from Singapore's HDB build-to-order pipeline of approximately 55,000 units across FY2025 – FY2027. The analysts believe that the acquisition is “immediately accretive” to FY2026/FY2027 EPS at 4%/8%, with YTL expected to contribute $13 million and $28 million to HLA’s patmi in FY2026 and FY2027 respectively.
In FY2026, the analysts project HLA’s patmi to increase to $156 million from FY2025’s $113 million, and subsequently to $206 million in FY2027. The revised sum-of-the-parts target price values HLA's building materials segment at 8 times FY2027 EV/Ebitda. Re-rating catalysts include a successful spin-off of Guangxi Yuchai Marine and Genset Power Co., Ltd. (MGP) on the Hong Kong Stock Exchange and a step-up in dividends. On the other hand, downside risks include a slower China recovery and delayed project execution.
Shares in Hong Leong Asia were up 8 cents, or 2.36%, trading at $3.42 before the midday break on May 12.
