Continue reading this on our app for a better experience

Open in App
Home Capital Broker's Calls

CGS-CIMB likes Hong Leong Asia, thinks it is ‘well set for the future’

Felicia Tan
Felicia Tan • 3 min read
CGS-CIMB likes Hong Leong Asia, thinks it is ‘well set for the future’
The analysts have kept their “add” call and target price of $1 after their site visit to the HL-Sunway prefab hub on Sept 8. Photo: Bloomberg
Font Resizer
Share to Whatsapp
Share to Facebook
Share to LinkedIn
Scroll to top
Follow us on Facebook and join our Telegram channel for the latest updates.

Hong Leong Asia (HLA) H22 -

seems to be “well set for the future”, say CGS-CIMB Research analysts Ong Khang Chuen and Kenneth Tan.

The analysts have kept their “add” call and target price of $1 after their site visit to the HL-Sunway prefab hub on Sept 8. The analysts’ target price represents an upside of about 62.6% to HLA's price of 61 cents as at their report dated Sept 11.

The hub, which is the largest integrated construction and prefab hub (ICPH) in Singapore, is a 51:49 joint venture with Malaysia’s Sunway Construction Group. It commenced operations on July 21. The facility boasts 26 production lines and has an annual production capacity of 100,000 cubic metres of precast elements (equivalent of approximately 2,500 built-to-order or BTO public housing flat units).

“We were impressed by the high level of automation integrated into the ICPH. An example shown to us was the automated precast production system (APPS), designed for efficient production of precast slabs/walls via automated pallet transporters, concrete spreaders, and compacting stations,” say Ong and Tan of their experience.

“We were also shown the automated storage and retrieval system (mechanised storage/retrieval of precast elements) and flying bucket system (rapid distribution of raw materials around the facility),” they add. “Compared to the group’s existing Tuas facility, HLA said that its new ICPH needs one-third the number of workers and half the working space for the same amount of work conducted.”

The analysts were also impressed by the hub’s design, which included environmental, social and governance (ESG) features such as the over 1,700 solar panels on the hub’s roof. The panels have the ability to generate enough electricity to support 20% to 25% of the hub’s annual power requirements.

See also: S-REITs not yet in vogue, DBS continues to favour industrial and retail subsectors

Other ESG features include the hub’s use of perforated façade cladding (porous and angled surfaces), which allows natural ventilation and light within the compound.

“HLA said that this has allowed annual cost savings of [around] $860,000 as industrial fans are not needed,” note Ong and Tan.

“To reduce dust pollution, the ICPH utilises misting sprays located at raw material unloading points, allowing efficient removal of small dust particles,” they add.

See also: UOB Kay Hian lifts ComfortDelGro’s TP to $1.61 upon seeing improving rail and taxi ridership

Following their visit, the analysts believe that HLA’s building material unit (BMU) is “well-positioned” to benefit from the Housing and Development Board’s (HDB) push to supply more public houses in Singapore.

To them, re-rating catalysts for the group overall include the Chinese government’s stimulus measures catalysing diesel engine sales and stronger construction activities in Singapore.

Downside risks include slower-than-expected business sentiment recovery in China affecting diesel engine sales, and weaker construction demand in Singapore and Malaysia due to an economic slowdown, they add.

Shares in HLA closed 1 cent higher or 1.65% up at 61.5 cents on Sept 12.

Loading next article...
The Edge Singapore
Download The Edge Singapore App
Google playApple store play
Keep updated
Follow our social media
Subscribe to The Edge Singapore
Get credible investing ideas from our in-depth stock analysis, interviews with key executives, corporate movements coverage and their impact on the market.
© 2022 The Edge Publishing Pte Ltd. All rights reserved.