Hong Leong Asia (SGX:H22)'s FY21 revenue grew 9.7% y-o-y to S$4.9bn, exceeding our forecasts by 5%. However, FY21 PATMI formed only 81% of our full-year forecasts, at S$60.1m. Notably, 2H21 revenue and PATMI declined steeply h-o-h, as pre-buying for diesel engines (in preparation for regulatory changes) tapered off
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We are projecting diesel engine sales of 441,447 for FY22, noting that strong pre-buying may lead to lower sales in the following period (as seen in 2014-2015). Segment EBIT margins are also projected to come in at 3.3%, an improvement, as we expect R&D spend related to National VI engine standards to taper off as the standards come into effect.
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Hong Leong Asia (SGX:H22)'s FY21 revenue grew 9.7% y-o-y to S$4.9bn, exceeding our forecasts by 5%. However, FY21 PATMI formed only 81% of our full-year forecasts, at S$60.1m. Notably, 2H21 revenue and PATMI declined steeply h-o-h, as pre-buying for diesel engines (in preparation for regulatory changes) tapered off
While diesel engine unit sales were in line at 456,791 (457,849 forecasted), research and development spending came in much higher than expected, denting diesel engine segment EBIT margins to 2.5% (FY20: 4.8%).
Lower capitalisation of R&D expenses, together with the further development of National VI and Tier 4 engines and new energy products, drove R&D spend to rise an aggressive 72% h-o-h, to S$111.8m. This was a surprise and meant that the diesel engine segment recorded a FY21 margin of ~2.5%, a 2.3ppt decline y-o-y.
We are projecting diesel engine sales of 441,447 for FY22, noting that strong pre-buying may lead to lower sales in the following period (as seen in 2014-2015). Segment EBIT margins are also projected to come in at 3.3%, an improvement, as we expect R&D spend related to National VI engine standards to taper off as the standards come into effect.
A bright spot was Hong Leong Asia's building material segment, where EBIT grew 53.3% y-o-y to $24.5m in FY21, exceeding our forecasts by 6%.
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Above is an excerpt from a report by DBS Group Research. Clients of DBS may access the full PDF report @ https://www.dbs.com/insightsdirect/.
