Concrete, Cash and Dividends in Singapore’s Building Supercycle -- At Just 4.8x ex‑Cash PE

THE CONTEXT • Singapore-listed Hong Leong Asia saw its 1HFY25 net profit jump 13% to S$56 million. It is benefitting from Singapore becoming basically one giant construction site now (from Changi T5 and Tuas Mega Port to the North-South Corridor and Cross Island Line, and new HDB towns everywhere). • Hong Leong Asia is busy trucking out ready-mix concrete and precast products  from its factories to meet this demand. • Its stock price ($2.16) is +137% year-to-date. It has pulled back from the $2.79 Oct peak on messy news about two senior executives of its NYSE-listed subsidiary China Yuchai -- which produces engines for trucks, etc and gensets mainly in China -- getting detained by authorities. • On the bright side, the construction business in SG is running smoothly and the group is sitting on S$749 million net cash. The interim dividend got doubled to 2 cents, and the stock looks cheap as its ex-cash PE is just 4.8x, according to UOB KH which is forecasting a 49% y-o-y jump in FY25 net profit to S$130 million. •  Long story short: Singapore keeps building, Hong Leong Asia (market cap: S$1.6 billion) keeps supplying, and demand in China for trucks and gensets stays strong.  • Read more about UOB KH's site visit and updates below ....

Excerpts from UOB KH report
Analyst: Adrian Loh

HONG LEONG ASIA

ANALYSIS
• Recent site visit underlines exposure to Singapore’s robust construction demand. We recently visited one of Hong Leong Asia’s (HLA) 12 batching plants across six locations in Singapore.

These 12 plants have a total annual capacity of approximately 3m m³ of ready-mix concrete (RMC).

The Jurong site that we visited is a permanent plant with a 30-year lease that expires in 2053/54, producing around 2,000 m³ of concrete per day.

According to management, the efficiency of semi-automated plant depends on order flow and demand.

• Here comes AI. Interestingly, management stated that it has currently implemented an AI pilot project that is expected to reduce manpower requirements due to improvements in scheduling and dispatch to enhance plant utilisation.

This is especially key in light of Singapore’s increasingly stringent foreign workforce participation rules over the past few years.

HLA expects that this system could undergo full implementation in 2026.

• Upcoming second Jurong Plant. With a 25-year lease signed in Aug 25, the company will start construction of its second Jurong plant in 1Q26 with the completion and issuance of a Temporary Occupation Permit by early-2027.

The plant will have two 6.0 m³ mixers and is designed for higher efficiency and modern automation and, according to management, will have a payback period of around 8-9 years (implying 11-13% IRR).

HL-Sunway Prefab Hub in Punggol Barat Lane -- can produce entire sets of beams, columns, rooms and other building components with speed and accuracy – up to 100,000 cubic m of precast components per year. That's enough to complete about 17 blocks of flats.

• BRC Asia’s (BRC SP/BUY/Target: S$4.69) FY25 results better than expected. Last week, BRC (HLA’s 20% associate) reported FY25 PATMI of S$94m (+1% yoy) that beat ours and consensus estimates due to lower-thanexpected opex.

Total DPS of S$0.20 was in line with estimates and the outlook appears robust with an orderbook of S$1.9b (or 1.25x FY25 revenue) providing strong earnings visibility.

• Data centres – a key growth engine. The global proliferation of data centres (DCs), especially for AI and edge capacity, has resulted in higher demand for standby multi-hour backup power.

Thus, diesel gensets remain the default for Tier 3/4 sites.

According to industry estimates, the global total addressable market (TAM) for DC generators could grow from US$7.6b-9.2b in 2025 to US$12b-17b by 2033-34 with DC expansion in Johor driving Asia Pacific TAM to US$3.4b by 2029.

While China Yuchai only sold 1,000 units to its DC customers out of over 250,000 units in 1H25, margins and demand are materially higher and thus could be an interesting growth engine in the near to medium term.

Valuation/Recommendation • Maintain BUY with an unchanged SOTP-based target price of S$2.82. Our valuation for the powertrain segment uses a target 2026F PE multiple of 12x which is in line with the target multiple used for Weichai Power (2883 HK/BUY/Target: HK$19.00) while our valuation for the BMU segment uses an 8.4x 2026F EBITDA multiple which is in line with the company’s global comparable companies. Adrian Loh, analyst• In our view, HLA’s valuation multiples appear inexpensive as the company is trading at 2026F PE and EV/EBITDA of 11.3x and 6.5x respectively. Its ex-cash PE is even lower at 4.8x, based on our 2026 net profit estimates, while delivering an ROE of over 12%. We also highlight potential upside to our DPS forecast of S$0.05 for 2025 (25% yoy increase vs 1H24) which, judging by HLA’s strong free cash flow generation in 1H25, could see an increase when the company announces its 2025 results in Feb 26.

 

→ Full report here.
→ See also another play: This Company Benefits from Both SG’s Construction Surge and Regional Data Centre Boom