- We believe Hong Leong Asia (SGX:H22) is an underappreciated proxy to the Singapore and Malaysia construction industry upcycle.
- Reiterate ADD on Hong Leong Asia as we expect PATMI growth of another 15% in FY24F riding on stronger construction activity levels and volume recovery of its diesel engine unit (Yuchai), with a SOP-based target price of S$1.00.
Underappreciated Singapore & Malaysia building materials proxy
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Building materials unit (BMU) enjoying strong growth momentum
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- We note that Malaysian cement peers have seen strong profit improvements over the past 4 quarters, and the medium-term outlook remains positive, with the likely rollout of key mega projects (such as MRT 3, Bayan Lepas LRT and potentially HSR).
- Singapore operations are similarly seeing tailwinds from a robust construction outlook – the Building and Construction Authority (BCA) forecasts total construction demand (measured by contracts awarded) in 2024F of S$32bn-38bn (2023: S$33.8bn), the highest level since 2014, and for it to remain elevated at S$31bn-38bn p.a. through 2025-28F (2009-23 average: S$29.8bn).
- We forecast further segment PAT growth of 10% for Hong Leong Asia in FY24F with Malaysia’s cement ASPs on an upswing and Singapore’s higher precast demand on regulatory tailwinds.
Diesel engine unit (Yuchai) recovering from multi-year lows
- Read more at SGinvestors.io.
