UOB Kay Hian | March 24, 2025
“Unlock Robust Growth: Hong Leong Asia’s Promising Outlook Amid Surging Construction Demand”

Unlock Robust Growth: Hong Leong Asia’s Promising Outlook Amid Surging Construction Demand

Benefiting from Domestic Construction Boom

Hong Leong Asia (HLA) is poised to capitalize on the robust construction demand in its key markets of Singapore and Malaysia. According to Singapore’s Building and Construction Authority, total projected construction demand in 2025 is expected to reach between S\$47 billion and S\$53 billion, a significant increase from S\$44.2 billion in 2024. This growth is further supported by higher projected Ready-Mix Concrete (RMC) volumes, which are anticipated to grow from 13.4m³ in 2024 to 13.0m³-14.5m³ in 2025, driven by both the public and private sectors.
In Malaysia, the quarterly value of construction works completed has been on an upward trend, reaching RM42.0 billion in 4Q24 (+2.2% QoQ, +23.1% YoY). Upcoming mega infrastructure projects, such as the Mass Rapid Transit Phase 3, Pan Borneo Sabah Phase 1, High Speed Rail, and Sabah-Sarawak Link Road, are expected to further bolster market sentiment and drive demand.

Diversified and Innovative Portfolio

HLA’s 48%-owned subsidiary, China Yuchai International Limited (China Yuchai), is one of the top diesel engine manufacturers in China. The company has consistently invested in research and development to develop and improve its existing portfolio in response to new emission standards and ongoing secular trends, such as the rise of new energy vehicles (NEV). Some of China Yuchai’s new energy solutions include electric-continuously variable transmission power-split hybrid powertrain, integrated electric drive axle powertrain, and hydrogen fuel cell systems.

Robust Earnings Growth Ahead

Given the strong expected growth for both the Building Materials Unit (BMU) segment and China Yuchai, HLA’s PATMI is forecast to grow by 23.0% YoY in 2025 and 11.9% YoY in 2026, respectively. HLA is also implementing cost efficiency initiatives that are expected to support and expand margins moving forward. The company’s PATMI is projected to reach S\$79.4 million, S\$88.8 million, and S\$102.4 million in 2025-2027, respectively.

Attractive Valuation and Upside Potential

UOB Kay Hian maintains a BUY rating on HLA with a higher SOTP-based target price of S\$1.46 (previously S\$1.11), valuing the BMU and diesel engine segments at S\$854 million (6.4x 2025F EV/EBITDA) and S\$769 million (6.0x 2025F EV/EBITDA), respectively. The increase in target price is due to a higher market valuation for HLA’s stake in BRC Asia and a higher EV/EBITDA multiple used for the BMU segment, given the robust outlook for the construction sector.
With HLA’s current market cap at around S$763 million, the company remains undervalued, particularly its BMU segment, which is currently being overlooked by the market.

Key Catalysts

– Earnings surprise from better-than-expected engine and building materials sales – Better-than-expected dividend payout