Hong Leong Asia - CGS-CIMB Research 2022-08-23: Building Material Recovery Cushions Engine Segment Weakness

Hong Leong Asia - Building Material Recovery Cushions Engine Segment Weakness

  • Hong Leong Asia (SGX:H22)’s 1H22 core PATMI (excluding S$10.6m gain from asset disposal) of S$32.1m (+36% h-o-h, +6% y-o-y) was in line with our expectations at 50% of our FY22F forecast. Stronger-than-expected performance of building materials segment offset diesel engines segment’s weakness in 1H22.
    • Building materials (BMU) segment: Profit before tax (PBT) surged 141% y-o-y to S$33.6m in 1H22, helped by improving construction activities in Singapore as a result of relaxation of border restrictions which led to an inflow of migrant workers. We forecast segment PBT of S$35.7m (+93% y-o-y) in 2H22F with further recovery in construction activities.
    • Diesel engines (Yuchai) unit: Sales fell 37% y-o-y to 181k engines in 1H22 (off a high base in 1H21 which benefited from strong pre-buying on new engine standard implementation), but improved 6% h-o-h as distributors’ accumulated inventory was better digested. Sales of off-road engines performed relatively better compared to truck and bus engines. We think market conditions could remain challenging in 2H22F; hence, we lower our segment revenue growth forecast to 5% y-o-y for 2H22F.
  • Maintain ADD call on Hong Leong Asia as we expect stronger net profit in 2H22F, underpinned by tailwinds from a recovery in Singapore’s construction activities. Our FY22-24F EPS is raised by 1.3-4.2% on stronger BMU volume assumptions. Our SOP-based target price for Hong Leong Asia is raised slightly to S$1.05 accordingly.
  • Potential catalysts include faster recovery in Singapore’s construction sector or Chinese government’s stimulus measures catalysing diesel engine sales.

Above is the excerpt from research report by CGS-CIMB.
Clients of CGS-CIMB may access the full report in PDF @ https://www.itradecimb.com.sg/.

ONG Khang Chuen CFA CGS-CIMB Research | Kenneth TAN CGS-CIMB Research | https://www.cgs-cimb.com 2022-08-23
SGX Stock Analyst Report ADD MAINTAIN ADD 1.05 UP 1.000

Previous report by CGS-CIMB:
2022-03-08 Hong Leong Asia - Revving Up For A Stronger Ride In 2022

Relevant links:
Hong Leong Asia Analyst Report,
Hong Leong Asia Target Price,

Hong Leong Asia Share Price History,
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Hong Leong Asia Dividends/ Corp Actions,
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