- DRB-Hicom’s subsidiary KL Airport Services Sdn Bhd is acquiring air freight operator Gading Sari for RM72mil cash.

- The company said the transaction was on a willing buyer-willing seller basis and after taking into account Gading Sari’s audited net asset value of RM7.2mil as at 31 Dec 2013, audited PAT of RM2.2mil and the future earnings.

- We are of the view the purchase is steep at 10x the net asset value and 33x FY13 earnings. DRB-Hicom said it is in line with the group’s plan to develop KLAS into a leading centralised integrated logistics provider in Malaysia by providing a one-stop solution.

- Earlier this year, DRB-Hicom assumed control of haulier Konsortium Logistik Bhd (KLB) for ~RM390mil via a takeover offer price of 2x PBV and a 23.6x trailing PE.

- This is also part of KLAS’ bigger plan in providing an intermodal logistics solutions and supply chain management (SCM) and will help transform the group to become a fully integrated logistics service provider providing an end-to-end SCM.

- It will be funded via internal funds and borrowings. DRB-Hicom said the vendors would endeavour to assist KLAS to successfully renew the Air Operator Certificate upon its expiry in February 2015.

- Gading Sari currently provides air freight services to Pos Malaysia, an associate of DRB-Hicom – for the PosLaju service between the peninsula and the East Malaysia cities of Kuching, Miri and Kota Kinabalu – believed to be with two leased planes.

- Gading Sari's major shareholders include the Crown Prince of Pahang, Tengku Abdullah Sultan Ahmad Shah (45%), Vescargo Sdn Bhd (35%) and Tengku Azman Sultan Abu Bakar (10%), Tengku Dato’ Zafrul Tengku Abdul Aziz (5%) and Raja Mufik Affandi Raja Khalid (5%).

- While the price is steep, this is a relatively small initial investment in the air cargo transport sector. DRB-Hicom now has the opportunity to scale up its logistics operations along with Pos Malaysia. We maintain BUY, with an unchanged fair value of RM3.60/share – a 15% discount to our SOP value of RM4.25/share.

Source: AmeSecurities