Hong Leong Asia - Net cash position powering medium-term growth

Industrial arm of Hong Leong Group

Hong Leong Asia (HLA) is the industrial flagship of the Hong Leong Group Singapore, one of Southeast Asia’s largest and most diversified conglomerates with interests spanning property, finance, and manufacturing.

Listed on the Singapore Exchange (SGX) since 1998, HLA has evolved over six decades from a domestic building-materials producer into a pan-Asian industrial platform with operations spanning China, Singapore, and Malaysia, supported by a workforce of approximately 10,000 employees.

HLA’s business is organised under two main operating divisions:

• Hong Leong Asia (HLA) holds a 48.7% stake in China Yuchai International (NYSE: CYD), which is the listed holding company for the group’s engine operations. CYD in turn owns 76.4% of Guangxi Yuchai Machinery Company Limited (GYMCL), one of China’s largest independent manufacturers of diesel, natural gas, and alternative-fuel engines. 

  • Through this two-tier shareholding structure, HLA’s effective economic interest in GYMCL is approximately 37%, reflecting its partial ownership of CYD rather than direct control of the operating engine business. 

  • Despite the minority stake, the Powertrain Solutions segment remains HLA’s largest earnings contributor and the key determinant of group performance. 

• Building Materials – Accounting for about 11% of 1H2025 revenue, encompassing HL Building Materials, Island Concrete, HL Cement (Quarries & Aggregates) and Tasek Corporation Berhad (a major cement producer in Malaysia, 98.3%-owned).

  • This division supplies cement, ready-mix concrete, precast components and aggregates to Singapore’s and Malaysia’s construction and infrastructure sectors. 

  • With vertically integrated operations and leading market share positions, it provides HLA with earnings stability and steady cash returns, offsetting the cyclicality of its China exposure.

Strong rebound in 1H25 earnings with the doubling of interim dividend

Group revenue rose 25.7% YoY to S$2.83 billion from S$2.25 billion, led by a 30.8% surge in Powertrain Solutions sales to S$2.51 billion. Building Materials saw a 3.5% YoY decline to S$310 million amid lower ready-mix volumes.

Group gross profit expanded 18.5% to S$427.5 million, though gross margin moderated to 15.1% (from 16.0%) due to product mix and RMB weakness.

Profit before tax jumped 31% YoY to S$121 million, driven by volume growth and operating efficiencies at Yuchai. 

Net profit attributable to shareholders (PATMI) was S$56.0 million (+13.1% YoY). Excluding a one-off associate gain in 1H 2024, core PATMI rose 21.2% YoY. 

Earnings per share climbed to 7.49 Singapore cents, and the Board doubled the interim dividend to S$0.02/share. 

Operating cash flow soared to S$397 million (>8× YoY), lifting HLA’s net cash position to S$749 million (Dec 2024: S$478 million). Net-cash-to-equity improved to 0.79×, reflecting a strong balance sheet for expansion and dividend growth.

Powertrain solutions division remains core earnings driver

The Powertrain Solutions division remains the cornerstone of Hong Leong Asia’s earnings profile and long-term value creation, underpinned by its effective controlling stake in China Yuchai International (NYSE: CYD). 

CYD, in turn, owns a majority interest in Guangxi Yuchai Machinery Company Limited (GYMCL), one of China’s largest independent engine manufacturers with a strong technological roadmap and extensive OEM relationships. 

The business develops and produces an integrated suite of diesel, natural gas, hybrid, and emerging hydrogen-powertrain engines that are deployed across trucks, buses, marine vessels, construction machinery, industrial equipment, and power-generation applications. 

Its long operating history, broad product portfolio, and expanding position in export and alternative-fuel markets give the Powertrain Solutions segment the scale, innovation capability, and recurring cash generation that anchor HLA’s industrial leadership and their transition toward cleaner, high-efficiency power systems.

Strong 1H25 performance with outperformance versus peers

Yuchai delivered a strong set of half-year results in 1H 2025, selling 250,396 engines (+29.9% YoY) and generating a 30.8% YoY increase in revenue to S$2.51 billion. 

Profit after tax surged 56.4% YoY to S$96.8 million, supported by market share gains, margin expansion, and strong momentum in export markets. 

Segment performance was broad-based, with truck and bus engine sales up 38%, marine and genset engines up 31.5%, and industrial engines rising 27%.

Importantly, this strength was achieved despite a 2.6% decline in China’s domestic commercial vehicle market, according to China Association of Automobile Manufacturers (CAAM). Growth was driven instead by OEM export demand, a shift toward higher-value heavy-duty and marine engine applications, and Yuchai’s disciplined pricing strategy.

Positive read-across from policy tailwinds

China’s policy backdrop remains highly supportive. Equipment renewal subsidies, the phased decommissioning of National IV heavy-duty trucks, and increased overseas infrastructure investment should lift demand for new HDT engines, heavy machinery, and logistics equipment. These policies directly benefit CYD’s core segments.

Global policy and structural trends also align in Yuchai’s favour, particularly rising requirements for multi-hour standby power in data centres and critical infrastructure. 

These drivers support sustained margin and revenue visibility in high-horsepower engine applications.

Data-centre power – a high-margin growth pillar

A major medium-term catalyst for CYD is its growing exposure to data-centre backup power systems. 

Diesel gensets remain the industry standard for Tier 3 and Tier 4 data centres given their reliability, rapid start-up capability, and cost-effectiveness. 

The rapid development of AI, cloud, and hyperscale facilities—particularly those concentrated in Johor and wider Southeast Asia—positions Yuchai well.

While CYD sold just 1,000 units to data-centre customers in 1H25 (a small proportion of its >250,000 total units sold), the margin profile is significantly higher, and the multi-year growth runway remains compelling. 

MTU Yuchai Power Co. Ltd, its joint venture with Rolls-Royce Power Systems, is expanding capacity to meet rising demand from hyperscale and high-availability facilities, reinforcing CYD’s positioning in this structurally expanding segment.

Strengthened international footprint and clean-technology transition

Yuchai continues to broaden its geographic and technological footprint. 

The Thai subsidiary commenced production of the first K08 engine in 1H 2025, while a new strategic partnership with Vietnam’s FUTA Group enhances its distribution capabilities in ASEAN. 

At the same time, the company is accelerating R&D into low-carbon and zero-emission technologies, including hybrid systems, integrated electric drive axles, hydrogen fuel cells, and clean natural gas engines—supporting its longer-term competitiveness as domestic and international emissions standards tighten.

CYD maintains a strong shareholder-return profile, paying a US$0.53/share cash dividend for FY2024, which continues to provide steady upstream cash flows to HLA.

Building Materials provides stable recurring cash flow

The Building Materials division is Hong Leong Asia’s second core earnings pillar, providing steady profitability and resilient cash generation through its integrated presence across Singapore and Malaysia. 

The business spans HL Building Materials, Island Concrete, and Tasek Corporation Berhad (98.3% owned), giving HLA end-to-end capabilities across cement, aggregates, ready-mix concrete (RMC), and precast products. 

As a key supplier to major infrastructure, industrial and housing projects, the division benefits from multi-year public and private sector demand in both markets.

Steady performance despite near-term volume softness

Building Materials revenue declined 3.5% YoY to S$310 million in 1H 2025, while profit after tax fell 10.7% YoY to S$37.4 million. In Singapore, precast demand improved alongside the ramp-up of public-housing projects, although RMC output was temporarily affected by capacity delays at certain batching plants. 

Even so, order books continued to expand across both public and private sectors, in line with the Building and Construction Authority’s (BCA) forecast of S$47–53 billion in total construction demand for 2025.

In Malaysia, Tasek Corporation’s profitability was supported by operational efficiencies and higher contributions from associates, offsetting slower infrastructure rollout and a modest decline in cement volumes following the higher Sales & Services Tax. 

Capex investments to lift efficiency and automate operations

The division is executing targeted capacity upgrades and productivity enhancements to support rising demand. 

New batching plants at Punggol Timor and Jurong Port RMC Hub are underway, and the company plans to pilot its first autonomous front-wheel loader in 2H 2025. 

These initiatives should improve plant utilisation, throughput consistency, and manpower efficiency.

The Jurong facility—operating on a long-term lease expiring in 2053/54—produces roughly 2,000 m³ per day and relies on semi-automated processes where utilisation is heavily determined by project scheduling and demand flow.

AI-driven operational improvements

Management has begun piloting an AI-powered scheduling and dispatch system designed to optimise plant utilisation and reduce manpower requirements—highly relevant given Singapore’s tightening foreign workforce rules. 

Full rollout is expected in 2026, and early results suggest meaningful efficiency uplift and better coordination across the company’s multi-plant network.

Second Jurong plant: modern automation with attractive returns

HLA also secured a 25-year lease in August 2025 for its second Jurong plant, with construction slated to begin in 1Q 2026 and completion targeted for early 2027. 

Equipped with two 6.0 m³ mixers and modern automation systems, the plant is designed for higher throughput efficiency. 

Tailwinds from Singapore’s multi-year infrastructure and housing cycle

The outlook for construction activity in Singapore remains bright. Budget 2025 earmarked S$19.6 billion for infrastructure, with significant allocations to transport (Changi Airport Terminal 5, MRT line extensions, North–South Corridor), healthcare (Tengah Hospital), and industrial development (Woodlands North Coast). 

Transport infrastructure alone received an incremental S$18 billion funding boost.

Beyond infrastructure, residential demand is strengthening. 

HDB plans to launch ~55,000 BTO flats between 2025 and 2027—10% above earlier targets—to alleviate housing pressures. 

The Government Land Sales programme will also release land for 9,755 private homes in 2025, ~50% above the 2021–23 average. 

These trends point to sustained demand for RMC, precast components, cement, and aggregates over the coming years.

Positioned to benefit from long-term demand through 2029

The BCA projects annual construction demand of S$39–46 billion through 2029, underpinned by major developments such as Changi Terminal 5, the Marina Bay Sands and Resorts World Sentosa expansions, and renewed infrastructure activity in Malaysia. 

With a diversified product suite, sustainability-aligned operations (including alternative fuels and Green Mark-certified facilities), and ongoing automation initiatives, the Building Materials division offers stable, high-visibility earnings that balance the more cyclical Powertrain Solutions segment. 

It remains a key contributor to HLA’s overall resilience and cash-flow strength.

Clear medium-term strategic roadmap

Hong Leong Asia’s medium-term strategy is focused on driving sustainable growth and value creation across its industrial portfolio.

HLA focuses on advancing the green powertrain transition, with Yuchai at the forefront of developing next-generation engines powered by hybrid, hydrogen, and clean gas technologies. 

Leveraging its deep R&D capabilities and joint ventures with global partners such as Rolls-Royce Power Systems, Yuchai aims to expand its low-emission product range and capture new opportunities arising from China’s clean-energy transition and global decarbonisation initiatives.

The second pillar centres on automation and digitalisation, as HLA invests in robotics, digital batching systems, and data-driven logistics to enhance operational efficiency within its Building Materials segment. 

These initiatives are expected to improve margins, reduce labour dependency, and support sustainable scalability in Singapore’s and Malaysia’s construction ecosystems.

The third strategic thrust lies in regional expansion, broadening both product and geographic exposure. 

Yuchai is actively growing its export footprint in Southeast Asia, particularly in Thailand, Vietnam, and Indonesia, while the Building Materials division seeks to extend its cement and aggregates distribution networks beyond Singapore and Malaysia. 

These efforts position HLA to benefit from regional urbanisation trends and rising infrastructure demand.

Together, these strategic priorities reinforce Hong Leong Asia’s transformation into a future-ready, diversified industrial leader.

Initiate with Buy

We initiate coverage on Hong Leong Asia (HLA) with a BUY rating. 

Our positive view is underpinned by a multi-year earnings recovery driven by the rebound in Yuchai’s Powertrain business, improving margins in the Building Materials segment, and a healthier balance sheet supported by strong cash generation. 

Yuchai’s volume growth outlook has strengthened on rising demand for cleaner engines and export markets, while HLA’s Singapore Building Materials operations are positioned to benefit from a sustained pipeline of public and private construction projects. 

The company maintains a solid balance sheet with a net cash position, supported by disciplined capital management and improving visibility on margin expansion across its key business segments. 

Target price of S$2.75

We adopt a sum-of-the-parts (SOTP) framework to capture the distinct value drivers across Hong Leong Asia’s diversified portfolio. 

HLA’s largest component is its 48.7% stake in China Yuchai International (CYD), which we value at market, implying a stake worth S$714m based on CYD’s share price of US$30.20, 37.65m shares outstanding, and an FX rate of 1.29. 

For the Building Materials Unit (BMU), we apply a 10x P/E multiple to FY24 PAT of S$86.2m, reflecting its stable earnings profile and favourable construction outlook, deriving a valuation of S$862m. 

We also mark to market HLA’s 20.15% stake in BRC Asia, valuing it at S$228m. 

Adding group-level net cash of S$749m (as reported in 1H25 results) results in a gross SOTP value of S$2.55bn. 

To account for conglomerate structure, partial ownership, and transparency discounts, we apply a 20% holding-company discount, arriving at an implied equity value of S$2.04bn, or S$2.75 per share.

At S$2.75, this would imply 19.8x 2026 P/E and 2% dividend yield.

Key Risks

Key risks include cyclical demand in truck and construction markets, evolving regulatory requirements for clean-energy powertrains, foreign-exchange volatility in China and Malaysia, execution risk in new-technology adoption, and potential governance and operational uncertainty linked to ongoing regulatory matters in China.

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