Is Hong Leong Industries ROE turnaround sustainable?

Hong Leong Industries Berhad is a Malaysia-focused company engaged in the manufacturing and distribution of motorcycles, ceramic tiles, and automotive parts.

Over the past six years, the Group has transformed from a diversified industrial conglomerate into a focused, consumer-centric business. It exited the low-margin fibre cement segment and ventured into automotive spare parts, building on its strong position in the motorcycle industry.

Despite the strategic pivot, revenue and profit grew modestly at around 4% CAGR. ROE declined from 24% in 2019 to a low of 14% in 2022 but has since rebounded, reaching 26% on a Dec 2024 LTM basis. This was driven by a shift toward higher-margin, scalable operations. The share price has mirrored this recovery, trending upward since late 2023.

The Group’s position in the Goldmine quadrant of the Fundamental Mapper highlights its strong fundamentals and manageable investment risk. The key question now is whether the ROE recovery can be sustained.

With the fibre cement divestment, HLI operates more efficiently. Strong brand positioning and new recurring income streams support profitability, while lean operations and disciplined capital allocation place the Group in a god position to sustain ROE in the mid-20% range.