• DRB-Hicom said on Thursday it will dispose of several properties to Prisma Dimensi Sdn Bhd for a total consideration of RM1.9bil. This payment will be fulfilled with 1,200 acres of land in Johor Bahru and cash proceeds of RM288.7mil.

• The assets to be sold by DRB-Hicom are:

1) 10 properties held by various subsidiaries for a total of RM1.4bil. These comprise 8 in Klang Valley (across Jalan Tun Razak, Glenmarie Shah Alam, Puchong, Klang and Batu Caves), as well as one each in Johor Bahru and Terengganu. The land in Johor is the most significant as it makes up nearly two-thirds of the total market value of the 10 properties.

2) Its entire interest of 70.6% in Horsedale Development Bhd for RM332mil. Horsedale has 7 assets in Glenmarie, Shah Alam comprising the Glenmarie Golf & Country Club, Holiday Inn Kuala Lumpur Glenmarie and residential lands.

3) Its entire interest of 100% in Rebak Island Marina Bhd for RM170mil.

The unit has a resort (Rebak Island Resort) and undeveloped land in Pulau Rebak, Langkawi.

• The total consideration of RM1.9bil to be received by DRB-Hicom comprises a cash payment of RM289mil and a total of 1,200 acres of land in Johor Bahru with a market value of RM1.6bil (this is based on a valuation dated Feb 2018 and against a book value of RM346mil as of June 2017).

• DRB-Hicom has plans to develop this into a modern industrial park (comprising factories, worker hostels and community facilities) with a GDV of RM4.3bil, and over the course of 10 years from the year 2020. The group said it is too early to determine the total cost and additional funding required for this.

• The group will see a one-off net gain on disposal of RM849mil from the property disposals.

• We maintain our earnings projections given the minor contribution seen from the hospitality assets. The cash proceeds to be received is of a minor quantum and will have a small impact on reducing the group’s debt.

• We are neutral on the news given the challenge in finding success with a major property development in Johor. The two key risks are the slowing property sales there, and the group’s need for capital amid efforts to hold up its various segments and to see through Proton’s reforms towards making the carmaker profitable in five years.

• The group is exchanging land and properties worth a total market value of RM2bil for the Johor land last valued at RM1.6bil and cash of RM244mil. We trim our SOP-based FV by 4 sen to RM1.85 to reflect the change in its landbank value and net debt while maintaining a HOLD recommendation.

Source: AmInvest Research - 9 Mar 2018