- Last Friday, DRB-Hicom announced the acquisition of a car rental company, Sistem Sewa Kereta Malaysia Sdn Bhd (SSKM), for RM5.5mil cash.

- Its subsidiary Edaran Otomobil Nasional Bhd (EON) has signed a conditional agreement to acquire 75% and 25% of SSKM from Melewar Leisure Sdn Bhd (MLSB) and Avis Investment Services Ltd (AVIS), respectively – totaling 3.42mil shares of RM1 each.

- It includes the proposed capitalisation of a RM1.42mil debt that SSKM owed to MLSB as at 28 Feb 2014. As such, MLSB’s portion would be increased to 85%.

- The proposed transaction is expected to be completed in 2Q14 and is conditional upon SSKM entering into a licence/franchise agreement with Avis Asia Limited.

- No details were provided of the Avis car rental business in the country, except that the consideration took into account SSKM’s audited PAT of RM0.395mil for the year ended 31 Dec 2012 and net assets of ~RM1.67mil.

- DRB-Hicom says it provides a diversification opportunity into the vehicle rental business, which can complement the existing vehicle leasing activities of DRB-Hicom Leasing Sdn Bhd.

- We are neutral on this development, given the small investment, while near and medium term returns are not expected to be significant. It is crucial for DRB-Hicom’s subsidiary Proton to ramp up the launches of new models for the mass market.

- It is slated to introduce its planned global small car – codenamed P2-30A – by the middle of this year, and plans to unveil a hybrid by year-end.

- Its subsidiary Deftech is expected to start recognising earnings this year (impact in FY15F) from its RM7.55bil 8x8 wheeled Armoured-Vehicle (AV8) project. The first AV8s is tentatively scheduled to be rolled out by the middle of this year.

- We maintain our numbers for now and reiterate our BUY call on DRB-Hicom Bhd, with an unchanged fair value of RM3.60/share – a 15% discount to our SOP value of RM4.25/share. 

Source: AmeSecurities