Chairman’s Statement

I am very pleased to report to shareholders that the Group has recorded its highest ever profit in 2003.Group turnover reached a record high of $1.88 billion, up 15% from 2002 resulting in profit before tax and minorities surging 52% to $260.5 million. The net profit after tax attributable to shareholders leapt to a record of $112.6 million, a 201% increase over 2002. Included within this net profit attributable to shareholders, was an exceptional gain of $58.7 million arising primarily from the disposal of quoted shares in New York listed, China Yuchai International (China Yuchai). Following this disposal, Hong Leong Asia (HLA) has retained its core 22.2% stake and its special “controlling” share in China Yuchai. Profits from the Building Materials Unit (BMU) rose to the highest level since the Company was listed in 1998. The strength of the China business units (Diesel Engine – Yuchai, and Industrial Packaging – Rex) was tested and proved resilient in 2003 when the businesses recovered well from the ravages of SARS, which afflicted the region in the second quarter of 2003.

Key highlights from the four business units are as follows:

Home Appliance Unit – Henan Xinfei (Xinfei)

The outbreak of the SARS virus had a detrimental effect on Xinfei’s performance as the outbreak occurred during Xinfei’s peak selling season. However, for the full year of 2003, sales turnover still increase by 2% to Rmb2.32 billion compared to the previous year as Xinfei’s sales bounced back strongly after SARS.

An aggressive cost reduction program (still in progress) in reducing selling and distribution costs has been successful. However, additional stock provision relating to slow-moving and obsolete stock of Rmb40 million has led to a decline in profit before taxation of 25% compared to previous year.

In November, Xinfei signed its first major business alliance with Hitachi of Japan. This alliance is a significant achievement, which augurs well for Xinfei’s future development. This alliance with Hitachi will result in Xinfei manufacturing refrigerators and freezers on behalf of Hitachi initially for the Japanese market and subsequently for Europe.

Xinfei is already benefiting from Hitachi’s strong design and technology capability. The flow through of these benefits to improve Xinfei’s China domestic products will accelerate in 2004/2005.

Diesel Engine Unit – Guangxi Yuchai Machinery Company (Yuchai)

Yuchai boosted its sales in 2003 by 30% to Rmb 4.5 billion. Sales of lower margin, light duty four cylinder engines, which grew 107%, were the principal growth driver. Unfortunately, sales of high margin, heavy-duty engines were capacity constrained in 2003 limiting profit growth.

This resulted in profit before tax increasing 11% to Rmb 697 million compared with Rmb 625 million achieved in 2002.

Early in 2003, Yuchai embarked upon a major capital expenditure program to increase the production capacity of heavy-duty engines by 20,000 units per year and to construct a new foundry. I am pleased to report this expansion will be completed on schedule towards the end of Q1-2004.

This expansion will provide a significant opportunity to boost Yuchai’s performance in the years ahead.The expansion will enable Yuchai to enter the high growth, higher margin market for engines over 300Hp, while eventually reducing its cost base by replacing imported engines blocks and cylinder heads with production from the new foundry.

A dispute over the delay in payment of dividends declared by Yuchai in August 2002 to China Yuchai was resolved in July 2003. China Yuchai received the delayed dividend payment of US$29.7 million on 4 August 2003. Due to the continued strong performance of its operating subsidiary Yuchai, China Yuchai received a further special dividend of US$37.1 million on 29 September 2003.

Industrial Packaging Unit – Rex (Rex)

Rex’s sales revenue surged to a record $138.6 million with profit before tax increasing by 22% to $11.1 million in 2003 compared with the $9.1 million in profit before tax earned in 2002.

The profit before tax includes expensing $838,000 in pre-operating costs for the start-up of production of Gpac’s environmentally friendly products.

While the plastic packaging operations in China performed well, the metal drum business in Singapore and Malaysia provided the most improved performances.

Three new factories were constructed and leased in Dongguang, Shanghai and Tianjin in China to cope with the growth in the China market. In 2003, the capital expenditure of $16.9 million for additional plant and equipment to produce higher margin products should provide a boost to Rex’s performance in 2004. It is expected that GPac Technology (formerly known as Ekopak Technology) will commence production of air cargo pallets using recycled materials in Q2-2004.

Building Materials Unit (BMU)

Almost all of the businesses in this unit improved their performance in 2003 resulting in the profit before tax reaching a record of $19.8 million on sales of $299 million compared with a loss of $3.7 million on sales of $285 million in 2002.

Karimun Granite boosted its profit by increased sales of marine rocks to Natuna Gas Pipeline project from Indonesia to Singapore during the year.

An improving demand for cement in Malaysia together with the strong new management recruited for HLA associate company Tasek Corporation in Ipoh Malaysia resulted in improved profit performance. The global prices for structural steel products increased dramatically in 2003 producing windfall profits from the sales of previously purchased stocks and the trading activity conducted during the year. The sale of this structural steel division was announced on 5 January 2004.

With the sale, the BMU now consists of fully integrated cement, granite, ready-mix concrete and precast concrete product businesses.

Strong Cash Position

The cash position of the Group improved dramatically in 2003. At year end, the Group held a net cash position after deducting bank borrowings of $61 million. Thus, the Company enters 2004 with a substantial capacity to implement its growth strategies.

Growth Strategy

The Company has 4 components for its growth strategy. They are:-

1. Continue to grow its businesses organically in response to market conditions with a targeted capital expenditure program;

2. Using its strong cash position, the Company intends to increase its stake in its existing business units when the opportunity arises;

3. Having built a substantial manufacturing platform in China, the Company is now actively searching for acquisitions; and

4. To provide a quantum leap in the performance of selected business units in China, the Company would continue to pursue business alliances with major foreign manufacturing companies, leveraging on HLA’s low cost and high quality manufacturing base and using these companies’ global distribution channels and technology.

Company’s Achievements Recognized

Hong Leong Asia has received awards and accolades from the Securities Investors Association of Singapore (SIAS), twice in 2002 and 2003, recognizing the company for its effort in improving corporate transparency as well as from the Singapore 1000 for Best Industry Growth in the manufacturing category in January 2004.

Prospect

The Board is confident that it will continue to operate profitably. The outlook for 2004 is positive with China market remaining buoyant with growth forecasts to exceed 8%. The substantial capital expenditure on the new plant and equipment for Yuchai and Rex will enable these business units to better satisfy market demand. The Xinfei-Hitachi business alliance will enhance Xinfei’s technology capabilities and enable it to export its products to Japan and Europe with the initial benefits starting to flow through in 2004.

Global and regional supply side price pressures for cement, steel and other building materials should see these commodities increase in price in both Malaysia and Singapore.

Dividend

The Board of Directors has recommended a final dividend of 4 cents and a special dividend of 6 cents, per share, bringing the total dividend for 2003 to 12 cents per share including the interim dividend of 2 cents per share paid during the year.

Appreciation

On behalf of the Board of Directors, I would like to thank our shareholders, customers, business associates and management and staff for their contribution and look forward to their continuing support.

Kwek Leng Beng

Chairman

27 February 2004