YTL, with six decades of operating history, has built an "entrenched" market position and a visible order pipeline tied to residential construction demand.
It is one of the five HDB-approved suppliers of household shelters, which gives it a "significant" market share in this very niche sector.
Lai figures that HLA paid about 2.6x book value for this acquisition, implying a significant goodwill component.
On a pro-forma basis, assuming the deal was completed on Jan 1 2025, it would have lifted HLA's EPS from 15.08 cents to 15.79 cents. However, if one-offs at YTL are discarded, EPS would have increased to 17.89 cents instead.
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"The key positives are that the deal is strategically coherent, expands HLA’s product offering in Singapore, leverages existing capabilities, and is earnings accretive from the outset PE multiple of only around 4.5x," says Lai.
Even upon completion of this deal, HLA continues to maintain a very healthy net cash position, with a net cash over equity position of 0.65x.
Nonetheless, Lai warns that main risks lie in the premium valuation paid, and the reliance on continued strength in Singapore’s construction cycle to support growth and justify the goodwill created.
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"Overall, we view this highly accretive acquisition as a positive for HLA and reiterate our 'buy' recommendation," he adds.
Hong Leong Asia shares changed hands at $3.28 as at 9.49 am, up 3.79%.
