06 June 2007

Hong Leong Asia forecasts robust growth

The Business Times

HONG Leong Asia Ltd expects its earnings to remain robust in the next few years, driven by strong demand for building materials here and contributions from its diesel-engine and appliances manufacturing operations in China, chief executive Teo Tong Kooi said.

'We have a very strong (building materials) order book,' Mr Teo told Thomson Financial in a recent interview

He declined to disclose the value of the order book, but he estimates that the company's orders can sustain its earnings in the next five years.

The building materials group was the fastest growing division of Hong Leong Asia last year, with its net profit rising to $13.4 million from $3.7 million. The division accounted for some 22 per cent of the group's net profit of $61.1 million last year.

The ban imposed by Indonesia on the export of sand and granite is unlikely to stymie growth because developers and construction companies are willing to pay higher prices for building materials, he said.

Indonesia's ban has forced Hong Leong Asia and other suppliers here to look for alternative sources such as Thailand, Vietnam and even China.

Mr Teo said the cost of transporting such materials from these sources is higher, but this is unlikely to affect the group's bottom line because such costs are passed on to customers.

Property developers should be able to absorb higher construction costs, given the spiraling prices of residential property and robust demand for retail and commercial property.

Hong Leong Asia unit Island Concrete Pte Ltd has just been awarded a contract to supply concrete for the construction of one of the integrated resorts. Island Concrete will exclusively supply about 0.8-1.2 million cubic meters of concrete until the project is completed in 2009.

The company gave no financial details but analysts estimate that the contract could be worth $133.6 million to $210 million.

The outlook for Hong Leong Asia's diesel-engine and consumer appliances manufacturing operations in China is also good.

The refrigerator, freezer and air-conditioner manufacturing business of 90 per cent-owned subsidiary Xinfei has been growing rapidly and the pace of growth is likely to be sustained, Mr Teo said. Last year, Xinfei's net profit grew 129 per cent to $43.8 million, accounting for about 71 per cent of the group's earnings.

To cope with demand, Xinfei has just increased its annual production capacity to three million appliances from 2.5 million. Capacity will be further increased to around four million appliances by the end of next year.

Hong Leong Asia associate China Yuchai is expanding its diesel engine manufacturing capacity in China with the construction of a new assembly plant to cope with growing demand there and abroad.

China Yuchai's diesel engines are used mainly for commercial vehicles, but it is in preliminary talks with Chinese carmaker Geely about producing engines for Geely cars, Mr Teo said.

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For more information, please contact:
Gerry de Silva, Group Corporate Affairs Manager
Hong Leong Group Singapore
9 Raffles Place, #36-00 Republic Plaza, Singapore 048619
Tel: 64289 308/9, 6438 3110 Fax: 6534 3060
Email: gerry@cdl.com.sg