• Hong Leong Asia has had a big run (+224%) in the past year, largely on the construction theme. It looks set for another upswing for a totally different reason: the IPO of an indirect subsidiary with a data centre theme. • UOB Kay Hian has upped its target price for Hong Leong Asia to $4.20 as a result. The analyst Adrian Loh uses a "Sum-of-the-Parts" (SOTP) method, valuing each distinct business unit separately and adding them up for the total share price for HLA, as follows: #1. MGP: It is a subsidiary of China Yuchai that makes engines for data centres. It is planning to list on the Hong Kong Stock Exchange. MGP is growing very fast (profits up 77% year-on-year) and is much more profitable than the rest of the group, so it deserves a higher PE multiple than the average market valuation. #2. China Yuchai: It is the US-listed subsidiary that owns the majority of MGP. Previously, the analyst valued this segment at 12x PE. Because of MGP's rapid growth and upcoming IPO, the analyst has upgraded it to 15x PE. #3. Hong Leong Asia: It is the Singapore-listed parent company for which the analyst sets a target price of S$4.20 (up from S$2.82) by adding up these four parts:
Read more below .... |
Excerpts from UOB Kay Hian report
Analyst: Adrian Loh
Highlights
• MGP manufactures diesel engines and generators of varying sizes, with its largest products used by data centres as back-up power. • Maintain BUY with a higher SOTP-based target price of S$4.20 (from S$2.82), implying 33% upside. |
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Analysis
• Filing for an IPO in Asia’s hottest market. Hong Leong Asia’s (HLA) 48.7% owned subsidiary China Yuchai International (CYD US, Not Rated) announced that its 71.4% owned subsidiary, Guangxi Yuchai Marine & Genset Power (MGP) has filed to list on the Hong Kong Stock Exchange.
MGP manufactures five types of power generators: marine, light-, medium-, heavy duty and large engines.
Its high-growth products, as mentioned before in prior research notes, are the heavy-duty and large engines which are used by data centres as back-up power.
• A high-growth business. In its draft prospectus, we note that MGP’s financials and profitability have been, and likely will continue to be, one of the major drivers of CYD’s profitability.
As can be seen in the table overleaf, MGP generated Rmb5b in revenue for 9M25 and Rmb762m in net profit, implying a 15% net margin. Importantly, this is substantially higher than CYD’s 3.9% net margin for 1H25.
We highlight that MGP’s net profit rose over 77% yoy for 9M25, an acceleration from the 35% yoy profit growth seen in 2024.
• Timeline not determined, but visibility will improve. While the timeline for the IPO has yet to be determined, we believe the market will value the ability to have a look-through valuation for CYD. Given the strength of the numbers for MGP, we believe that the market will have to upgrade valuations.
Our valuation for CYD used a target PE of 12x which now appears conservative relative to the historical growth that its subsidiary has experienced in the past 12 months.
As a result, we have upgraded this to 15x which may still be conservative relative to the HSI’s consensus 2026F PE of 12.1x.
Valuation/Recommendation
• Maintain BUY with a higher SOTP-based target price of S$4.20 (previously S$2.82).
This includes:
| → An upgrade of our target PE for the powertrain segment from 12x to 15x which is then pegged to the average of our estimated earnings for 2026 and 2027. We believe that this higher target multiple is warranted given the high profit growth rate seen in MGP’s 9M25 results. We point out that the HSI’s consensus 2026F PE is only 12.1x at present and that higher growth companies should intrinsically trade above this level. Even at a 20x PE, the implied PEG for MGP is an inexpensive 0.25x. → Our valuation for the building materials segment remains unchanged and uses an 8.4x 2026F EBITDA multiple which is in line with the company’s global comparable companies. |
• In our view, HLA’s valuation multiples appear inexpensive as the company is trading at 2026F PE and EV/EBITDA of 16.6x and 8.4x respectively.  Adrian Loh, analystIts ex-cash PE is even lower at 6.3x, 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 on 25 Feb 26. |
See the UOB KH report here.
