Chief investment officer Patrick Yau attributes China Yuchai’s revenue growth to the “very strong export volumes from our customers in China”. Yau says: “As they export, they capture our units in those exports. And there’s also been a fair degree of market share gains domestically, even though the Chinese domestic market itself is still very lukewarm.”
“Yuchai has been exporting via their original equipment manufacturers [OEM] into the rest of the world, but we don’t export to developed markets and definitely don’t export to the US,” notes Yau on the absence of tariff woes for the company.
Sales of new energy products — particularly generator sets (gensets) for data centres — also surged. In 1HFY2025, sales matched the combined volumes from FY2018 to FY2023, due to what CEO Stephen Ho recognises as demand driven by artificial intelligence.
“The Chinese economy, as everyone knows, is growing at about 5.2% on average. But all of that is very much driven by this front-loading of exports in the first half of this year. So, if you set it against this backdrop, I think we’ve done very well in terms of penetrating into the domestic markets, not just for backup generators, but also for on-road,” says Ho.
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Operating profit climbed 35.7% y-o-y to $138 million, while operating cash flow leapt nearly eightfold to $397.5 million. As at June 30, Hong Leong Asia’s net cash position improved to $749 million from $478 million as at FY2024. As such, the group has doubled its interim dividend to two cents per share from a year ago.
HLA’s 1HFY2025 results, which beat consensus estimates by 10%, prompted analysts from DBS Group Research, CGS International (CGSI) and UOB Kay Hian to maintain their “add” and “buy” calls with higher target prices.
DBS’s Dale Lai and Derek Tan have increased their target price to $2.80 from $1.60, which implies a 44% upside from HLA’s last-traded price of $1.95 as at Aug 18.
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“At the current price of $1.95 [per] share, HLA is trading at a forward P/E ratio of [around] 11.6 times, which is attractive given that the group is on the cusp of an earnings upswing, generating a return on equity of close to [around] 11.0%,” they write.
CGSI’s Natalie Ong and Lim Siew Khee have also upped their target price of $2.60 from $1.95 as HLA’s 1HFY2025 patmi stood at 58% of their forecasts.
The analysts have also raised their core earnings per share (EPS) estimates for the FY2025 to FY2027 by 2% to 13% on higher earnings from China Yuchai, but partly offset by lower building materials earnings, even though they expect ready-mix concrete volumes to improve in the 2HFY2025 as HLA’s batching plants in Punggol Timor increase capacity.
UOB Kay Hian’s Adrian Loh and Heidi Mo have increased their target price to $2.63 from $1.93 previously, even as HLA’s 1HFY2025 patmi stood at 50% of their full-year estimates.
In addition to solid engine sales, the analysts note that HLA’s balance sheet, with a net cash position of $749 million for the period ended June 30, remains undergeared.
“We also highlight HLA’s very strong free cash flow in 1HFY2025, which rose nearly fivefold y-o-y to $397 million. Without annualising, this implies a 29% free cash flow yield and may point to a much higher final dividend, which would be announced at the company’s annual results in February 2026.”
Over FY2024 to FY2027, DBS’s Lai and Tan project HLA to report a three-year earnings CAGR of around 50%. HLA’s net profit is expected to climb from $88 million in FY2024 to $149 million by FY2027, which would mark an eight-year high and drive return on equity to about 11%.
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The analysts believe HLA’s building materials segment should benefit from Singapore’s pipeline of infrastructure projects and stronger precast utilisation once the temporary disruptions are resolved.
On this, Yau says: “The demand is there. Our precast order book continues to grow and I think that should be the story for the next two to three years, at least, for our precast business. We are the biggest precast in Singapore, and we also have capacity in Malaysia to support us.”
While the second half is usually seasonally weaker for engines, Lai and Tan expect Hong Leong Asia’s full order book, particularly for gensets, to cushion any slowdown in heavy-vehicle sales.
They add: “From a strategic perspective, Hong Leong Asia continues to invest heavily in research and development of new engine technologies and new energy products, positioning itself for long-term growth.”
