• Singapore-listed Hong Leong Asia 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 ($2.22) is +144% year-to-date. • A RHB research note from Dec 16 spotlights its deep undervaluation (5X PE) on an ex-cash basis, backed by a fortress-like net cash position (S$750 million).  • Key drivers for its business? Aside from the construction upcycle, there's its subsidiary China Yuchai, with strong sales momentum in diesel engines and power gensets in China. • The RHB report is non-rated, so does not come with a target price or recommendation. UOB KH's recent report does. |
Excerpts from RHB report
Analyst: Shekhar Jaiswal
HONG LEONG ASIA
| Undervalued On Ex-Cash Basis With Growth Tailwinds |
| Hong Leong Asia offers exposure to Asia’s industrial and construction upcycle through its powertrain solutions and building materials platforms. Earnings momentum should be supported by China Yuchai International (CYI), while Singapore’s multi-year construction pipeline underpins recovery in building materials, complemented by indirect exposure via BRC Asia (BRC SP, NR). A net cash balance sheet and strong cash flow generation supports potential higher shareholder returns. Trading at an undemanding ex-cash P/E, HLA should see greater investor interest with better earnings visibility. |
Balance sheet strength could lead to enhanced shareholder value generation. HLA’s strong balance sheet is a key differentiator within the Singapore industrials space and underpins optionality for shareholder value creation.
As at 30 Jun 2025, HLA was in a net cash position of approximately SGD705m (adjusting for lease liabilities), supported by robust operating and free cash flow generation in 1H25.
The doubling of the interim dividend signals management’s confidence in the sustainability of cash flows and marks a shift towards more visible capital returns, which is increasingly valued by investors in a volatile macro environment.
Looking ahead, HLA’s balance sheet strength provides strategic flexibility to deploy capital in a value-accretive manner, whether through higher and more consistent dividend payouts or selective acquisitions that deepen exposure to core growth themes such as construction materials and industrial solutions.
In the context of Singapore’s ongoing equity market reforms and renewed focus on small- and mid-cap value creation, HLA’s net cash position enhances its appeal to investors seeking companies with both downside protection and upside optionality, positioning balance sheet deployment as a potential catalyst for re-rating.
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.
While HLA screens optically expensive on headline P/E metrics, this materially overstates its true valuation given the strength of its balance sheet.  Shekhar Jaiswal, analyst The group’s net cash position of c.SGD705m accounts for c.58% of its market capitalisation, materially lowering the implied valuation of the underlying operating businesses. On a net cash-adjusted basis, HLA trades at roughly 5.2x 2FY earnings based on Bloomberg estimates, which appears undemanding relative to street expectations of c.14% EPS growth over the same period. This valuation discount is further underpinned by visible dividend upside and strong free cash flow generation, as evidenced by the significant increase in interim DPS in 1H25. With Singapore’s construction market still in the early stages of a multi-year upcycle, and ongoing equity market reforms potentially supporting re-rating of quality small- and mid-cap names, investors may increasingly focus on ex-cash valuations rather than headline multiples, providing scope for multiple expansion as earnings momentum and capital returns become more apparent. |
→ Full report here.
→ See also another play: This Company Benefits from Both SG’s Construction Surge and Regional Data Centre Boom
