Hong Leong Asia - Returning To Its Roots
HONG LEONG ASIA LTD. (SGX:H22)
- 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
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