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This Singapore Company Is a Surprising Leader of One Particular Industry in China

Leadership ChessBillionaire Kwek Leng Beng might be most known in Singapore for being the Executive Chairman of real estate juggernaut City Development (SGX: C09).

What might escape the notice of most is that he is actually the Chairman for two other Singapore-listed companies:Hong Leong Finance (SGX: S41) and Hong Leong Asia (SGX: H22).

Hong Leong Asia in particular, is not a very well covered company in Singapore amongst investors. This might be due to its complicated business segments, or the complex investment-arrangements it has with some of its subsidiaries, or both. However, if we look deeper beneath the surface, Hong Leong Asia might have some very valuable assets.

The main ‘very valuable assets’ that Hong Leong Asia has is its 34.88% stake in US-listed China Yuchai International (NYSE: CYD). Although Hong Leong Asia does not have majority ownership of China Yuchai, it accounts for China Yuchai as a subsidiary in its financials due to the fact that it has the influence to nominate the majority of China Yuchai’s Board of Directors.

China Yuchai, through its main operating subsidiary, Guangxi Yuchai Machinery Company (GYMC), is one of the largest diesel engine manufacturers (by unit sales) in China. This diesel engine business is in fact Hong Leong Asia’s largest revenue contributor, accounting for 81.2% of the company’s total revenue in 2013.

The US-based heavy equipment giant Caterpillar (NYSE: CAT) has a joint venture with China Yuchai called Yuchai Remanufacturing Services Co. Ltd. This week, China Yuchai announced that it has bought over Caterpillar’s stake in the joint venture.

Both companies actually have a long working relationship with China Yuchai’s products being used in selected Caterpillar diesel engines and components. In the joint venture, China Yuchai has benefitted greatly from Caterpillar’s expertise and both parties now agree that it’s time for China Yuchai to take full control of the remanufacturing business.

Now that China Yuchai has full control of the joint venture, the company can potentially create more synergy by integrating GYMC and Yuchai Remanufacturing Services. The best part is that China Yuchai would not be alone; Caterpillar will still continue to provide technical support for GYMC in the future.

Foolish Summary

Although the purchase of the joint venture is not significant to the balance sheet of Hong Leong Asia, it’s a sign that China Yuchai now has the ability to fly solo with its business activities instead of playing just a manufacturing-support role for foreign partners. As the company develops its value chain in the diesel engine space, the prospects for Hong Leong Asia might be raised as well.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Stanley Lim doesn’t own shares in any companies mentioned.