UOBKH' s Loh stays positive on Hong Leong Asia for construction and data centre growth potential

 

UOB Kay Hian' s Adrian Loh has kept his " buy" call and $2.82 target price for Hong Leong Asia, as he reaffirms the building materials company' s exposure to the construction upcycle.
Hong Leong Asia runs 12 batching plants across six locations in Singapore, with a total annual capacity of some 3 million m³ of ready-mix concrete (RMC).

Loh notes that the company has recently piloted the use of AI, so as to reduce manpower requirements due to improvements in scheduling and dispatch to enhance plant utilisation.

" This is especially key in light of Singapore&rsquo s increasingly stringent foreign workforce participation rules over the past few years," says Loh, adding that Hong Leong Asia expects that this system could undergo full implementation in 2026.

The plant will have two 6.0 m³ mixers and is designed for higher efficiency and modern automation. According to management, this plant will have a payback period of around 8-9 years, which implies an 11-13% IRR.

Besides the RMC business, Hong Leong Asia holds stakes in two other key entities, both of which are seeing respective growth.

Besides the existing business of producing engines for heavy vehicles, China Yuchai is seen to enjoy new growth from providing back-up generators for the growing market of data centres.

Loh, citing industry estimates, notes that the global total addressable market for data centre DC generators could grow from US$7.6 - 9.2 billion in 2025 to US$12 -17 billion by 2033-34 with data centre expansion in Johor driving Asia Pacific TAM to US$3.4 billion by 2029.

China Yuchai sold just 1,000 units to its data centre customers out of over 250,000 units in 1HFY2025, but Loh notes that given how margins and demand are materially higher, this could be an interesting growth engine in the near to medium term.

" In our view, Hong Leong Asia' s valuation multiples appear inexpensive as the company is trading at FY2026 earnings and EV/EBITDA of 11.3x and 6.5x respectively," says Loh.

Excluding cash, the company' s PE is even lower at 4.8x, based on his 2026 earnings estimates, while delivering an ROE of over 12%.

Loh sees potential for dividends to be increased from the current forecast of 5 cents for FY2025.

Hong Leong Asia shares, as at 10.49 am, gained 1.4% to trade at $2.17, up 128.4% year to date.