Highlights

• 1H26 revenue of S$3,129m and PATMI of S$92m beat our forecasts at 52% and 65% respectively, driven by double-digit growth across both segments.
   

• HLA declared an interim dividend of S$0.03/share for 1H26 (1H25: S$0.02), backed by a strong net cash position and following an enlarged share base.
   

• Maintain BUY with a lower target price of S$4.70, due to an enlarged share base. Our target price also implies a 48% upside.
   

Analysis

• 1H26 results better than expected. 1H26 revenue grew 17.6% yoy to S$3,129m, accounting for 52% of our forecast, driven by double-digit growth across both powertrain solutions and building materials (BMU) business segments. PATMI grew 64.1% yoy to S$91.9m, beating expectations and representing 65% of our full-year forecasts. Bottom line growth was driven by higher profitability in both business segments, and further supported by contribution from the recent Yong Tai Loong (YTL) acquisition in Apr 26 that broadens HLA's Singapore building materials offering.
   

• Higher interim dividend underpins strong earnings trajectory. Hong Leong Asia (HLA) declared an interim dividend of S$0.03/share for 1H26 (1H25: S$0.02/share; +50% yoy). This is backed by stronger earnings, alongside a strong net cash position of around S$1.08b. Notably, the higher payout comes despite an enlarged share base from a placement in May 26, which raised total shares outstanding by 6.7% to 798.1m as at end-June (end-25: 748.1m). Even after this dilution, the 50% DPS increase still outpaced share count growth, underscoring management's confidence in the earnings trajectory.
   

• Powertrain solutions segment extends its winning streak. This segment remained the primary growth engine, with revenue rising 16.8% yoy to S$2.73b and PAT up 61.8% yoy to S$156.7m. Engine unit sales grew 10.9% yoy to 277,684 units, with truck engine sales up 20.4% yoy, well ahead of China’s commercial vehicle industry growth of 5.8%. Off-road demand was also strong, with marine and genset units up 42.0% yoy and industrial units up 15.8% yoy. Margin expansion was driven by a richer mix of heavy-duty and export engines alongside scale and cost efficiencies. Management expects growth to continue, underpinned by rising demand for advanced engines from data centres and further export growth.
   

• BMU steps up a gear. BMU revenue rose 24.1% yoy to S$384.8m, with profit up 49.9% yoy to S$56.1m, a marked acceleration from the broadly flat performance seen previously. Singapore precast and ready-mix concrete demand stayed robust, lifting the precast orderbook to a record. Malaysia (Tasek) benefitted from better pricing and stronger associate contributions, offsetting higher fuel and logistics costs. The Apr 26 acquisition of YTL further strengthened the segment's architectural building products offering. Management expects healthy growth across precast, ready-mix concrete and architectural building products as orderbooks are delivered. By geography, Singapore and Malaysia BMU expect healthy demand from public and private projects, though the Middle East conflict continues to pressure fuel and logistics costs.
   

• Further uplift to BMU business from recent YTL acquisition. The S$90.7m YTL acquisition, completed in Apr 26, broadens HLA's Singapore BMU offering and was funded via the recent S$142.1m share placement, with S$40.2m already used to repay related borrowings and the remaining approximately S$50m earmarked for working capital, capex and potential overseas acquisition opportunities. Management's pro forma (assuming completion on 1 Jan 25) showed 2025 EPS rising 18.6% to S$0.1789 excluding one-offs, underscoring the deal's accretive nature. Since 1H26 only captured less than two months of contribution vs a full year in the pro forma, we expect a meaningful uplift in 2H26, with the full accretive impact flowing through from 2027.