We maintain Buy on DRB-HIcom Bhd, with a fair value of RM3.65/share – a 15% discount to our SOP value of RM4.31/share. DRB-Hicom appears poised to experience its next phase of growth, judging from recent newsflow on the group.

The key takeaways for the NAP-related news are as follows:-

1) Its subsidiary Proton is preparing to join the fray in the production of, and compete in, energy-efficient vehicles (EEVs) – a key focus of the NAP, which is scheduled to be unveiled today. We are of the view that this will ensure that Proton does not lose out on the incentives under NAP, while bracing itself for further liberalisation of the industry and an accompanying gradual decline in retail prices pursuant to the NAP. Apart from Lotus, its subsidiary CRTM will play a key part in its planned production of EEVs. Positively too, DRB-Hicom’s 34% associate Honda Malaysia is eyeing to be the number one hybrid hub in Asia-Oceania by 2016. DRB-Hicom itself makes vehicles for VW and Mercedes-Benz – both of which could benefit from the NAP as well.

2) Its unit Puspakom Sdn Bhd holds the concession to undertake mandatory inspections of commercial vehicles. As we have noted, it is expected to benefit from a proposal under the NAP that passenger vehicles undergo inspections as well. The policy will initially make it a voluntary exercise.

The key takeaways for the non-NAP-related news are as follows:-

1) As has been anticipated, Deftech will start recognising earnings this year from its RM7.55bil 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.

2) DRB-Hicom intends to make its newly acquired unit Konsortium Logistik Bhd (KLB) the number one logistics provider in the country. The takeover of KLB is scheduled to be completed by the current quarter.

3) 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.

4) DRB-Hicom has set a revenue target of RM17bil by the year ending March 2016. We maintain our numbers.

Source: AmeSecurities