• We maintain our BUY recommendation on DRB-Hicom with an unchanged SOP-based FV of RM1.87/share.

• DRB-Hicom is buying out the remaining 49% equity stake in Media City Ventures Sdn Bhd (MCV) from related party Enigma Permata Sdn Bhd for RM100mil cash.

• MCV’s key asset and business is Media City Development Sdn Bhd (100%-owned), which is primarily engaged in construction, operation and maintenance of infrastructure and broadcast system via a concession agreement with the government. The concession agreement is for 23 years (starting 20 March 2012), undertaking the privatization of the development of new office buildings, including broadcasting studios and auditorium for the Ministry of Information, Communication and Culture.

• The transaction values MCV in its entirety at RM204.1mil, at a slight premium to its net assets of RM194.8mil. Based on MCV’s 1Q2020 net profit of RM12.05mil, the stake is effectively being transacted at 4.2x P/E, which we deem attractive.

• We are positive on the acquisition which appears to be earnings accretive. Assuming an interest cost of 5%, the acquisition will boost DRB-Hicom’s FY20F earnings by 10%. We shall impute this into our forecasts upon the completion of the deal, which is expected to be within a month. Maintain BUY.

Source: AmInvest Research - 3 Jun 2020