- DRB-Hicom has disposed of its entire 51% stake comprising 636,481 shares in Scott & English Trading (Sarawak) Sdn Bhd (SET) to a subsidiary of Shin Yang Shipping Corp Bhd (Syscorp) for RM0.65mil cash.

- DRB-Hicom’s 70% subsidiary Scott & English (Malaysia) Sdn Bhd (SEM) and Syscorp unit Shinline Corp Sdn Bhd yesterday inked the shares sale agreement to complete the deal.

- SET trades in heavy machinery and equipment, spare parts, and electrical appliances. Prior to this, a Syscorp-related party Shin Yang Corp Sdn Bhd already owns the balance 49% of SET.

- DRB-Hicom said the consideration took into account SET’s net assets as at 31 December 2013 and the proposed dividend of RM1.94/share prior to the disposal.

- We are neutral on the transaction. DRB-Hicom said it was in line with the group’s intention to streamline its businesses by divesting its investments in non-core activities.

- According to DRB-Hicom’s FY13 annual report, SEM is a major supplier of high horsepower engines to the ship-building industry, but was adversely affected by the lack of recovery in the world’s ship-building industry.

- Incorporating the financial results of its two subsidiaries, HICOM United Leasing Sdn Bhd and SET, SEM’s total sales and PBT in FY13 amounted to RM222.1mil and RM9.9mil, respectively. The impact of the latest disposal will not be material.

- For the DRB-Hicom group, it remains crucial for its subsidiary Proton to ramp up the launches of new models for the mass market.

- In the meantime, Proton’s underperformance will be mitigated by the auto division’s military contractor Deftech, which is expected to start recognising earnings from its RM7.55bil 8x8 wheeled Armoured-Vehicle (AV8) project in FY15.

- We maintain our numbers and reiterate our BUY call on DRB-Hicom, with an unchanged fair value of RM3.60/share – a 15% discount to our SOP value of RM4.25/share. The group’s value is supported by its concessions businesses, its 32% stake in Pos Malaysia, a 70% stake in Bank Muamalat, as well as various plots of land and investment properties. 

Source: AmeSecurities