Hong Leong Asia - DBS Research 2022-03-04: Returning To Its Roots

Hong Leong Asia - Returning To Its Roots

  • Hong Leong Asia (SGX:H22)'s FY21 PATMI rises 28.6% y-o-y to S$60.1m.
  • Disruption and delays in construction caused by COVID-19 had resulted in a construction backlog estimated at over ~S$5.8bn. We think FY22F will be a key year in addressing this backlog, especially as the foreign worker shortage is expected to ease in the coming months. We project building material segment revenue at S$543.3m.
  • The implementation of the National VI(a) emission standards had elevated purchases of diesel engines in 1H21. While EBIT margins were lower in FY21 due to higher R&D spend and input costs, we think FY22 could see better margins, as we expect R&D spend related to the standards to taper off as they come into effect.
  • Yuchai has seen its R&D expenses increase by a CAGR of ~35% over the past two years, to ~S$176.9m in FY21. Armed with an experienced R&D team, we think it is critical for Yuchai to venture into the new energy space as China tightens emission standards in the sector. A successful venture by Yuchai into the new energy commercial vehicle space could drive a re-rating, taking the stock closer to its electric vehicle peers.
  • Valuation: The diesel engine and building material segments are pegged to a 8.0x FY22F P/E and 12.0x FY22F P/E, respectively, to obtain our SOTP-based target price of S$1.02 for Hong Leong Asia.

Above is the excerpt from report by DBS Group Research.
Clients of DBS may access the full report in PDF @ https://www.dbs.com/insightsdirect/.

Woon Bing Yong DBS Group Research | Derek TAN DBS Research | https://www.dbs.com/insightsdirect/ 2022-03-04
SGX Stock Analyst Report BUY MAINTAIN BUY 1.02 SAME 1.02

Check out the most recent target prices at Hong Leong Asia Target Prices. Listing of analyst research reports at Hong Leong Asia Analyst Report.

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Hong Leong Asia Share Price History,
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