INDUSTRIAL conglomerate Hong Leong Asia : H22 -5.34% (HLA) expects a more modest pickup as China&rsquo s recovery remains slow, and companies hold on to vehicles for a longer period of time.

 

In an earnings briefing on Monday (Aug 14) for the half-year ended June 2023, the group noted that despite selling fewer engine units as part of its powertrain solutions segment, profit after tax still grew 60.5 per cent year on year to S$48.1 million.

 

The powertrain solutions segment&rsquo s revenue fell 2.4 per cent to S$1.76 billion, and accounted for 84.6 per cent of the company&rsquo s total revenue. This comes as the number of engine units sold fell 8.4 per cent to 165,793 units.

 

HLA chief executive Stephen Ho said that during the pandemic, trucks and buses were not run as hard. As a result, it may be another two years before the company sees more replacements of older vehicles.

 

Still, he attributed the improved margins to a change in product mix. The group saw lower engine sales for trucks and agriculture, but more units sold in the bus, industrial, marine and power generation applications.

 

&ldquo The marine and power generator sets tend to be bulkier, heavier, higher average selling price kind of machines and applications. Therefore, we would expect the margins to be better,&rdquo he said.

 

The group also posted a net loss in its rigid packaging segment, which refers to its plastic packaging related products and container components, on the lack of a gain on disposal of assets held-for-sale of S$10.6 million.

 

The segment posted a loss after tax of S$1.2 million, from a profit after tax of S$9.9 million, while revenue declined 20.9 per cent to S$10.4 million.

 

Ho said: &ldquo Essentially, the margins are extremely fine. There are competitive forces out there, but (we) don&rsquo t have the scale of the business, like we have in some other parts of the business.&rdquo He added that the group is considering its options, including turning the business around and selling it at better valuations.

 

Meanwhile, the building materials segment&rsquo s performance improved on the back of a turnaround in Malaysia&rsquo s construction sector, although sales in Singapore came in lower as the number of tenders were slightly softer in the first half of the year.

 

Revenue rose 8.6 per cent to S$306.3 million, while profit after tax rose 8.3 per cent to S$31 million.

 

Ho said that he is not &ldquo overly concerned&rdquo about demand in Singapore, as he expects more tenders to be put out in the latter half of the year.

 

&ldquo If the government has announced this (number) of Housing and Development Board flats to be launched, it really should benefit us only when the tenders come out. That&rsquo s not something we have full control over.&rdquo

 

Still, Ho noted that the group has faced challenges such as higher labour and energy costs, as well as a shortage of dormitories.

 

He said that the group is considering a range of options, including building worker accommodation on-site at the company&rsquo s newly-opened integrated construction and prefabrication hub (ICPH) at Punggol Barat, to bring in more workers.

 

The ICPH was launched in July this year, and is expected to supply 100,000 cubic metres of precast elements for 2,500 dwelling units annually.

 

&ldquo We&rsquo ve not taken any decisions yet so it&rsquo s too early to comment on it, but bear in mind, it&rsquo s a short-term problem&hellip over the next two, three years supply (of dormitories) will come up,&rdquo he said.

 

For the half year ended Jun 30, 2023, HLA posted a 27.6 per cent decline in net profit to S$30.9 million, as revenue declined 1 per cent to S$2.08 billion for the same period.

 

Net profit would have fallen 3.7 per cent after adjusting for the S$10.6 million one-off gain on disposal of assets held-for-sale in the first half of 2022, the group said.

 

HONG Leong Asia : H22 +3.97% on Friday (Aug 11) posted a net profit of S$30.9 million for the first half of the year, down 27.6 per cent from earnings of S$42.7 million in the year-ago period.

 

Earnings per share stood at S$0.0412 for the half year, down from S$0.0569 the previous year.

 

The group attributed the decline to the absence of a one-off gain from disposal of assets held for sale. 

 

Adjusting for the S$10.6 million one-off gain on disposal of assets held-for-sale in H1 last year, net profit would have declined 3.7 per cent, the group said.

 

Revenue for the period inched down 1 per cent to S$2.1 billion, due primarily to conversion effects of a weaker renminbi against the Singapore dollar. The group said about 85 per cent of its total revenue is generated from its businesses in China. This was, however, partially mitigated by revenue growth from the building materials unit in Malaysia. 

 

Cost of sales fell 2 per cent to S$1.7 billion, which pushed up the group&rsquo s gross profit by 3.6 per cent to S$372.9 million. 

 

No dividend was declared for the period under review, unchanged from the previous year. 

 

Segmentally, revenue contributions from Hong Leong Asia&rsquo s China powertrain solutions unit fell 2.4 per cent to S$1.8 billion. However, higher operating margins on a better sales mix towards bus, agricultural and industrial markets, as well as better performance from associates and joint ventures boosted the unit&rsquo s net profit.

 

Hong Leong Asia&rsquo s building materials unit&rsquo s revenue grew 8.6 per cent to S$306.3 million. The group said that while demand for building materials remained strong in Singapore, the industry is tackling challenges in health and safety issues, a shortage of dormitories, and higher costs in labour and energy. 

 

Hong Leong Asia said it is focused on strengthening its capabilities to execute new growth strategies, improving supply chain resilience and strengthening market position. 

 

The group said it is cautiously optimistic that its businesses will &ldquo perform satisfactorily&rdquo for the rest of the year. 

 

Looking ahead, the group is &ldquo cautiously optimistic&rdquo that its main business units will continue to remain resilient in the 2HFY2022

 

Hong Leong Asia, the listed trading and manufacturing arm of the Hong Leong Group, has announced earnings of $42.6 million for the 1HFY2022 ended June, 4.5% higher y-o-y.

 

However, revenue for the same period fell by 26.1% y-o-y to $2.10 billion due to the lower revenue recorded by its diesel engines unit Yuchai and partly offset by the higher revenue from the group&rsquo s building materials unit (BMU).

 

The decline in Yuchai&rsquo s revenue was due to the lower number of engines sold, as well as a decline in truck and bus unit sales, in addition to lower off-road unit sales. The declines were attributed to the Covid-19-related lockdowns, supply chain disruptions and slower economic growth in China, which led to lower demand for commercial vehicles.

 

BMU&rsquo s revenue increased y-o-y on the back of higher sales volumes and average selling prices (ASPs) as construction activities in Singapore and Malaysia continued to recover thus driving demand for concrete and related products.

 

Gross profit fell by 7.3% y-o-y to $360.1 million mainly due to the lower gross profit from the group&rsquo s Yuchai unit. During the period, the group&rsquo s gross profit margin (GPM) increased 3.5 percentage points y-o-y to 17.2% mainly due to improved margin in National VI engine sales and the increase in sales mix in the off-road segment for Yuchai.

 

Other income fell by 17.4% y-o-y to $33.3 million mainly due to lower interest income, lower government grants and absence of gain on debt assignment in 1HFY2021.

 

Selling and distribution expenses fell by 15.4% y-o-y to $128.5 million, while research and development (R& D) expenses increased by 32.0% y-o-y to $85.9 million. The lower selling and distribution expenses were due to lower staff costs and lower warranty expenses and delivery costs, while the increase in R& D costs were due to an increase in experimental costs primarily for the engines used for marine and power generation applications.

 

Earnings per share (EPS) increased by 4.4% y-o-y to 5.69 cents.

 

As at June 30, cash and bank balances stood at $1.18 billion.

 

Looking ahead, the group is &ldquo cautiously optimistic&rdquo that its main business units will continue to remain resilient in a difficult operating environment in the 2HFY2022.

 

&ldquo While challenges such as higher input costs and energy costs and issues with global supply chains are expected to linger, our push towards innovation and productivity improvements with automation and digitalisation will help to mitigate some of these pressures,&rdquo says the group in its Aug 11 statement.

 

In addition, the group sees that the market conditions for diesel engines in China will remain challenging. Meanwhile, it expects to see &ldquo modest improvement&rdquo at BMU Malaysia as Malaysia&rsquo s economy continues to recover.

 

Between Mar 7 and 8, Hong Leong Asia Hong Leong Asia: H22 0% executive chairman Kwek Leng Peck acquired 1 million shares of the company for a consideration of S$788,850. At an average price of 78.9 cents per share, this increased his total interest from 1.05 per cent to 1.19 per cent. This followed on from his acquisition of 4,044,100 shares at 59.6 cents per share between Nov 18 and 24, 2020.

 

On Feb 25, Hong Leong Asia reported that its FY21 (ended Dec 31) attributable net profit grew 28.6 per cent from FY20, to S$60.1 million. The Singapore-based conglomerate is a diversified Asian multinational with core businesses in construction and transport. Mr Kwek has overseen the growth of the group over the last 3 decades.

 

With the results, Hong Leong Asia noted that the construction of the group' s integrated construction and prefabrication hub manufacturing facility remains on track for completion in the second half of 2022, with the facility intended to introduce higher automation and help improve productivity for the precast business.