Group revenue climbed 22% y-o-y to $5.18 billion.
The group’s net cash nearly doubled to $845 million from FY2024’s $478 million. Based on outstanding shares of 748.14 million as at Feb 27, this translates to net cash of about $1.13 per share.
The board has proposed a final dividend of 3 cents per share, bringing its FY2025 total dividend to 5 cents per share, 25% higher y-o-y.
OCBC and DBS lift target prices
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Analysts from DBS Group Research and OCBC Investment Research are keeping their “buy” calls with higher target prices after Hong Leong Asia’s full-year earnings stood ahead of expectations.
DBS’s Dale Lai has lifted his target price to $3.90 from $2.80 previously, while OCBC’s Ada Lim increased her fair value estimate to $4.20 from $3.50 before.
“At the current price of $3 per share, Hong Leong Asia is trading at forward P/E ratio of 16 times, which is attractive given that the group is on the cusp of an earnings upswing, generating a return on equity (ROE) of close to [around] 13%,” Lai writes.
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Following the group’s earnings beat, Lai forecasts a three-year earnings compound annual growth rate (CAGR) of 15% from FY2025 to FY2028 on the back of higher deliveries across its business segments, particularly China Yuchai and its building materials arm. “We expect the group’s earnings to hit a record high, driving ROE close to 13% or more,” he says.
The analyst now predicts Hong Leong Asia’s FY2026 and FY2027 net profit to come in at $143 million and $161.7 million respectively.
Lim of OCBC has raised her FY2026 and FY2027 earnings per share (EPS) estimates by 21% and 27% to 19.1 cents and 21.8 cents or patmi of $144 million and $165 million respectively. She also sees potential for the group to further enhance shareholder returns by either acquiring synergistic and accretive businesses or by increasing dividend payouts, backed by a healthy balance sheet and net cash position.
Separately, CGS International’s Natalie Ong and Then Wan Lin have reiterated an “add” call on China Yuchai even though the company’s core patmi of RMB537 million ($99.0 million) missed their estimates at 89% of their full-year forecast due to higher-than-forecast tax rate and expenses. However, Ong and Then remain bullish given China Yuchai’s recent domestic market share gains and increasing indirect exports. The analysts have maintained their target price of US$65 ($82.20).
Higher net cash, higher dividends?
When asked about the prospect of higher dividends, Josephine Lee, group CFO, pointed out that the group has increased its dividend payout ratio since 2021. At 5 cents per share, the payout ratio now stands at 30% to 35%, which is a level that the group is “comfortable” with, as it needs to balance this against capital expenditure (capex) requirements.
Despite the stronger net cash position, Lee says the group remains mindful of working capital needs and believes it is “prudent” to maintain dividends at its current payout ratio. “The dividend that we pay out needs to be supported by dividend repatriation from China and in Malaysia. China, as you know, would have heavy investments in R&D (research and development) as well and so forth,” she says.
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Capex will remain focused on China and cement plant operations in Malaysia. Capex for China Yuchai will depend on the type of projects and R&D initiatives it is looking to embark on. However, she shares that the run rate for capex will be higher for the spin-off. In Malaysia, the group is looking to invest up to RM200 million over the next two years.
“Typically, China doesn’t take on debt. They can finance based on operating cashflow,” says Lee.
When pressed, Lee shares that the group’s net cash is split across its businesses. As China Yuchai is the largest contributor, most of the group’s net cash sits in China and cannot be used for M&As outside of the country. Should Hong Leong Asia be exploring new M&A opportunities abroad, the group will have to raise funds to finance such deals.
Powertrain solutions to be main earnings catalysts
Overall, Lai and Lim agree that Hong Leong Asia’s powertrain solutions unit will be the main earnings catalyst.
“The powertrain solutions division has been reporting strong growth in the recent years, with revenues growing by more than 40% in FY2025,” Lai points out.
“China Yuchai has also been growing its market share in China, and this is attributed to the unit's ongoing R&D efforts to improve its products and consistently introduce low emission solutions,” he adds.
The potential spin-off of China Yuchai’s marine and generator subsidiary will be another value unlocking initiative that will power the next phase of growth, Lai continues. He similarly expects the powertrain solutions division to “power ahead” on burgeoning demand for gensets, including data centre generator engines and new energy powertrains.
“We've been sharing that there's been good growth coming from the exporters, Chinese brands of vehicles, be it buses, trucks or industrial machinery exporting overseas, and that's been growing close to 50% the last few years and it's now almost a quarter of overall volumes,” says Patrick Yau, head of Hong Leong Asia’s transformation office.
He adds that the group is now seeing some level of growth from the domestic side. “The domestic recovery is adding to what has actually been a key growth rather than the last few years, which is exports.”
According to Frost & Sullivan data cited in China Yuchai's A1 filing on the Stock Exchange of Hong Kong (HKEX), the powergen engine market in China was valued at RMB14.7 billion in 2024 and is projected to grow at a CAGR of 18.9% to RMB41.5 billion by 2030, driven by demand from data centres and distributed power stations serving large industrial parks nationwide.
Group CEO Stephen Ho says China Yuchai, the largest player in China for power generator engines, is growing at a double-digit rate that is well ahead of China's broader GDP growth. "We are growing at 41.5%. That point is being missed somewhat by the market," he says.
With the potential HKEX listing of its generator subsidiary on the horizon and strong order books across both its powertrain and building materials divisions, the group is looking ahead to its next phase of growth in 2030. By then, it aims to strengthen its market leadership, build a resilient and high-performance business portfolio, and fully capitalise on its talent pool.
Shares in Hong Leong Asia closed 17 cents higher or 5.56% up at $3.23 on Feb 27.
