CGSI reiterates ' add' on Hong Leong Asia, raises TP to $5.50 on powertrain strength and Yong Tai Loong acquisition

Natalie Ong, Then Wan Lin and Tay Wee Kuang of CGS International have reiterated their " add" call on Hong Leong Asia (HLA) and with a higher target price of $5.50 from $4.50 previously on stronger powertrain earnings and the accretive acquisition of Yong Tai Loong (YTL).

The analysts&rsquo new target price implies an upside of 62.2% from HLA&rsquo s last-closed share price of $3.39 as at May 12. The analysts have also raised their earnings per share (EPS) estimates for the FY2026/FY2027 by 3% and 11% respectively for the same reasons.

HLA' s powertrain segment is expected to remain its key earnings driver over FY2026 &ndash FY2028, with segment profit forecast to grow 47% y-o-y in FY2026 on a better sales mix, driven by robust demand for high-horsepower (HHP) engines used in data centres and marine applications.

The analysts estimate HHP engine sales could contribute 15% &ndash 19% of HLA' s patmi in FY2026 &ndash FY2028. Underpinning demand is rising AI capex from Chinese hyperscalers, estimated to grow from US$60 billion ($76.2 billion) in 2025 to US$80 billion in FY2026, representing a 33% y-o-y increase.

Beyond HHP engines, China' s total diesel vehicle sales grew 16% y-o-y in 1QFY2026, with export growth outpacing domestic sales at 72% y-o-y, as Chinese original equipment manufacturers gain traction across ASEAN, the Middle East and Latin America.

On the building materials front, HLA completed its acquisition of YTL on April 21 for $90.7 million, implying approximately an FY2025 P/E of 4 times, based on the analysts&rsquo estimates.

YTL is one of only five HDB-approved household shelter steelwork suppliers in Singapore, which the analysts say gives the business high barriers to entry and two to three years of order book visibility from Singapore' s HDB build-to-order pipeline of approximately 55,000 units across FY2025 &ndash FY2027. The analysts believe that the acquisition is &ldquo immediately accretive&rdquo to FY2026/FY2027 EPS at 4%/8%, with YTL expected to contribute $13 million and $28 million to HLA&rsquo s patmi in FY2026 and FY2027 respectively.

In FY2026, the analysts project HLA&rsquo s patmi to increase to $156 million from FY2025&rsquo s $113 million, and subsequently to $206 million in FY2027. The revised sum-of-the-parts target price values HLA' s building materials segment at 8 times FY2027 EV/Ebitda. Re-rating catalysts include a successful spin-off of Guangxi Yuchai Marine and Genset Power Co., Ltd. (MGP) on the Hong Kong Stock Exchange and a step-up in dividends. On the other hand, downside risks include a slower China recovery and delayed project execution.

Shares in Hong Leong Asia were up 8 cents, or 2.36%, trading at $3.42 before the midday break on May 12.