Hong Leong Asia - CGS-CIMB Research 2023-01-26: Brighter Outlook For FY23

• Reiterate ADD with target price raised to S$1.10 as we see stronger PATMI growth for Hong Leong Asia in FY23F as both its key segments enjoy better prospects.

Diesel engines (Yuchai): Tailwinds in place for cyclical rebound

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• In light of the recent COVID policy pivot in China, we lift our expectations on China Yuchai’s engine unit sales to +12.5% y-o-y, catalysed by
  1. supportive economic measures to boost infra investments in China,
  2. replenishment of distributors’ low inventory levels, and
  3. the rollout of more supportive policies on the provincial levels to accelerate elimination of National IV diesel trucks.
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Building materials: Continued optimism for FY23F

• We expect Hong Leong Asia (SGX:H22)’s building materials segment PBT to double y-o-y to S$37m in 2H22F, driven by stronger construction activities in Singapore (helped by migrant worker inflow), and grow a further 8% in FY23F as labour productivity improves further.
• The Building and Construction Authority (BCA) expects total nominal construction output in Singapore to rise to S$30bn-33bn in 2023F (2022p: S$30.2bn), with demand for ready-mixed concrete growing to 11.5m-12.5m m3 in 2023F (2022p: 11.6m m3), while demand for precast concrete reaches 1.6m-1.7m m3 (2022p: 1.4m m3). See also report: Building Materials - CGS-CIMB Research 2023-01-12: On The Path To Recovery.
• Hong Leong Asia’s precast manufacturing facility in Pulau Punggol Barat which is slated to commence operations in 2023F should also position it well to tap the rising demand of precast concrete in Singapore (2024-25F: 2.0m- 2.6m m3), in line with the government’s push to improve construction productivity.

Reiterate ADD on Hong Leong Asia

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ONG Khang Chuen CFA CGS-CIMB Research | Kenneth TAN CGS-CIMB Research | https://www.cgs-cimb.com 2023-01-26 SGinvestors.io

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