Public Investment Bank "likes" DRB-Hicom

by **Cals** Thu 16 Jan 2014, 07:40

Posted on 16 January 2014 - 05:39am

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PETALING JAYA (Jan 16, 2014): Public Investment Bank has maintained its"outperform" call on DRB-Hicom Bhd with an 12-month unchanged target price of RM3.53 due to the undervalued assets within the group.

"We like DRB-Hicom for its undervalued assets embedded within the group such as its 70% stake in Bank Muamalat Malaysia Bhd, its 32.2% stake in Pos Malaysia Bhd as well as substantial property holdings," its analyst Lee Wee Sieng said in a report yesterday.

Recently, DRB-Hicom group managing director Tan Sri Mohd Khamil Jamil shared his views on the group at a media retreat in Sabah.

Khamil spoke on going big in education for automotive engineering and the rationale for the recent acquisitions of Konsortium Logistik Bhd (KLB) and Composites Technology Research Malaysia Sdn Bhd (CTRM), and gave an update on the divestment of a 30% stake in Bank Muamalat.

DRB-Hicom is bullish that its acquisitions of KLB and CTRM will provide synergies and add new core businesses to provide impetus for the group's future growth.

On KLB, DRB-Hicom can offer an integrated logistics services with Kuala Lumpur Airports Services Sdn Bhd (KLAS) providing first mile, Pos Malaysia providing last mile and KLB filling the gap.

On CTRM, while aero-composites will remain its core business, DRB-Hicom can leverage on its expertise in composite materials to reduce weight of vehicle and improving energy efficiency in line with the upcoming NAP on energy efficient vehicles.

It was also learnt that the group has yet to finalise the new party for its divestment of 30% stake in Bank Muamalat.
DRB-Hicom is required by Bank Negara to reduce its 70% stake in Bank Muamalat to 40%.

"While we do not expect the dilution of DRB-Hicom‟s stake in Bank Muamalat soon, we are expecting the group to finalise its sale of its general insurance arm, Uni.Asia General Insurance, in the near term," Lee said.

On another note, Khamil said DRB-Hicom has set a revenue target of RM17 billion by financial year ending March 31, 2016 (FY16).

DRB-Hicom generated revenue of RM13 billion in FY13, in comparison with RM6.88 billion in FY12 and RM6.8 billion in FY11, prior to the acquisition of the national car maker Proton Holdings Bhd.

In the first half ended Sept 30, 2013, the group saw revenue drop by 4.2% to RM6.7 billion, down from RM7 billion a year ago, mainly due to lower sales from automotive division.

Lee, however, see upside potential for DRB-Hicom's automotive division from its successful collaboration with the global auto players and contribution from Deftech's AV8 contract in 2014.

Moreover, the group has invested about RM350 million in its International College of Automotive, which Lee views positively, as it will provide DRB-Hicom the manpower and expertise for its sprawling automotive businesses.