DRB-Hicom ready for next phase of growth

by **Cals** Tue 21 Jan 2014, 10:44

Business & Markets 2014

Written by AmResearch

Tuesday, 21 January 2014 10:17

DRB-Hicom Bhd
(Jan 20, RM2.77)
Maintain buy at RM2.75 with a fair value of RM3.65: We maintain “buy” on DRB-Hicom, with a fair value of RM3.65 per share — a 15% discount to our sum-of-parts value of RM4.31 per share. It appears poised to experience its next phase of growth, judging from recent news flow on the group.

One of the key takeaways from the National Automotive Policy (NAP) related news is that its subsidiary Proton Holdings Bhd is preparing itself for the production of energy-efficient vehicles (EEVs) and compete for its market share in this segment, which is a focus of the NAP.

We are of the view that the group is taking this move to ensure that Proton does not lose out on the incentives provided under the NAP, while bracing itself for further liberalisation of the industry and an accompanying gradual decline in retail prices pursuant to the NAP.

Besides Lotus Cars Malaysia Sdn Bhd, its subsidiary Composites Technology Research Malaysia Sdn Bhd will play a key part in the group’s planned production of EEVs.

Positively too, DRB-Hicom’s 34% associate Honda Malaysia is eyeing to be the No 1 hybrid hub in the Asia-Oceania region by 2016. DRB-Hicom itself makes vehicles for Volkswagen and Mercedes-Benz — both of which could benefit from the NAP as well.

DRB-Hicom unit Puspakom Sdn Bhd holds the concession to undertake mandatory inspections of commercial vehicles.

As we have already noted, it is expected to benefit from a proposal under the NAP for passenger vehicles to undergo inspections as well.

As anticipated earlier, DRB-Hicom Defence Technologies Sdn Bhd will this year start recognising earnings from its RM7.55 billion 8x8 wheeled Armoured-Vehicle (AV8) project. The project involves the design, development and manufacture of 257 AV8s, with production peaking in 2016 and 2017. The first AV8s will be rolled out by the middle of this year.

Meanwhile, DRB-Hicom intends to make its newly acquired unit Konsortium Logistik Bhd (KLB) the No 1 logistics provider in the country. The takeover of KLB is scheduled to be completed by the current quarter.

It has also been reported that DRB–Hicom has yet to finalise the proposed disposal of a 30% stake out of its 70% stake in Bank Muamalat Malaysia Bhd. It is looking at a few opportunities for a strategic partnership to increase the bank’s penetration into Islamic finance.

DRB-Hicom has set a revenue target of RM17 billion by financial year ending March 31, 2016. We maintain our numbers. — AmResearch, Jan 20

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This article first appeared in The Edge Financial Daily, on January 21, 2014.