DRB-Hicom (DRB) announced that it has completed the share purchase agreement (SPA) to dispose 60% equity interest in AVEE Global to AAPICO Hitech Public Company Limited (AAPICO) for a cash consideration of RM40.7m. The disposal is to facilitate a strategic partnership with AAPICO to produce dies, jigs, hot stamping parts, body assembled parts and chassis components. We are positive on this as it enables Proton to leverage on Aapico’s economies of scale and investment initiative to produce vehicles with better cost efficiency and quality. We keep our estimates unchanged. We remain positive on DRB’s growth prospect and retain our Outperform call with unchanged sum-of-parts (SOP) based TP of RM2.10.

• AAPICO is one of the largest auto parts companies in Thailand. Founded in 1996, it is a Tier-1 parts supplier to OEMs including Toyota, Isuzu, Honda, Nissan, Ford, Mitsubishi and others. In 2022, it recorded revenue of RM3.7bn with a profit of RM240m. The strategic partnership is AAPICO’s second venture in Malaysia’s auto parts sector. Earlier this year, Aapico signed a JV with Purem, one of the world’s largest exhaust system suppliers with an initial investment of RM30m. Aapico also owns six car dealerships throughout Malaysia, including four Proton dealers.

• AVEE Global formerly known as Miyazu Malaysia, is located in Tanjung Malim. It specializes in the production of automotive components and metal heat-forming to produce lightweight durable parts. Previously, the company produced components exclusively for Proton. This JV now means that the company may also produce parts for other OEMs. The company will be renamed Aapico Avee Sdn Bhd.

• Strategic partnership. The partnership will see AAPICO make an initial investment of RM40m into the 20-acre Avee Global facility for further expansion as Proton prepares to cater to growing demand for its vehicles and from the overall automotive sector. This will be followed by a further investment of RM100m, planned by 2024 for further plant expansion and acquisition of new machinery.

Source: PublicInvest Research - 5 Jul 2023