In the construction landscape, Hong Leong Asia Ltd (HLA) (SGX:H22) stands as a hidden gem that has already demonstrated impressive performance and is set for even more growth due to the upcoming industry upcycle in Singapore and Malaysia.
In the first half of 2024 (1HFY2024), HLA reported a profit after tax and minority interests (PATMI) of S$50 million, marking a remarkable 61% year-on-year (YoY) increase. This surge in profitability is a testament to the company’s robust performance across its core segments: powertrain solutions and building materials. Revenue also saw an 8.5% rise, reaching S$2.3 billion from S$2.1 billion in 1HFY2023.
Powertrain Solutions: Significant Growth
HLA’s powertrain solutions segment, particularly through its subsidiary China Yuchai International Ltd, has been a standout performer. In 1H2024, Yuchai’s engine sales grew by an impressive 16% YoY, outpacing the industry’s growth. According to the China Association of Automobile Manufacturers, commercial diesel vehicle unit sales grew by 4.4% YoY in the same period. This success can be attributed to several factors: improved product price competitiveness, the launch of new gas engine models, and stronger export sales.
Adding to this momentum, China introduced a supportive government policy in July 2024, offering rebates for owners scrapping older trucks in favour of new energy trucks. While this stimulus program is a positive development for the powertrain industry, its effectiveness may be tempered by China’s broader economic challenges.
Building Materials: Strengthening Performance
HLA’s building materials segment also delivered strong results, bolstered by the performance of its Malaysian unit, Tasek Corporation Bhd. Higher volumes and selling prices contributed to this growth. The outlook for the building materials industry in Malaysia remains optimistic, driven by rising demand for data centres and anticipated government infrastructure projects, including the Penang LRT, Johor autonomous rapid transit, and potentially the Kuala Lumpur-Singapore high-speed rail.
Although the recent removal of diesel subsidies in Malaysia may increase overall costs, Tasek is focusing on improving operational efficiency and increasing the use of recycled materials and alternative raw materials and fuels, aligning with its sustainability goals. Meanwhile, HLA’s Singapore building materials unit anticipates continued growth in its order books for precast and ready-mix concrete segments, fuelled by both public and private sector projects.
With improving prospects across its key business segments, HLA’s stock has attracted attention. However, potential risks include a slower economic recovery in China, which could dampen Yuchai’s volume growth, and delays in the award of key infrastructure projects in Malaysia.
Disclaimer: ProsperUs Manager of Content Hailey Chung doesn’t own shares of any mentioned companies.
References
CGSI Company Note | Hong Leong Asia | August 23, 2024
Financial Statements – 1H2024 Results (hlasia.com.sg)
