Highlights

DRB announced the disposal of land in Johor and Kuala Lumpur for a total consideration of RM604.65m.

The land disposal will allow DRB to immediately capitalize on profits (unlock investment values) as well as the proceeds to be used to fund working capital requirements.

The Johor Land disposal is expected to complete by mid- 2013, while USF Land disposal had been completed by March 2013. DRB is expecting net gains of RM89.12m from Johor Land and RM54.6m from USF Land.

Comments

We continue to be positive on DRB’s on-going effort in restructuring the group, disposing non-core assets, addressing the gearing level, and unlocking hidden value.

DRB’s net gearing is expected to improve further from 48.1% to 38.3%. However, the cash proceed from Johor Land sales is staggered over 3 years, upon signing SPA.

The land disposal was the second exercise after DRB successfully disposed HICOM Power business (assets and liabilities) at RM575m in Dec 2012.

DRB is still in the midst of negotiating for its stake disposal of Uni.Asia, valued at RM400m. However, Affin and DRB have cancelled negotiation on Bank Muamalat stake sales.

Risks

• Prolonged bank tightening measures on lending rules.
• Slowdown of Malaysia economy affecting car sales.
• Global automotive supply chain disruption.
• Slow integration of Proton and Pos.

Forecasts

Unchanged.

Rating

BUY

• Positives –
  • Acquiring and restructuring of Proton, to turn DRB into a major integrated automotive player in the region.
  • Partnering VW group to set up regional hub in Malaysia.
  • Honda Malaysia to set up regional hub for Hybrid car.
  • Severely undervalued counter.
  • Deftech awards of RM7.55bn over 7 years.
  • Synergy of POS with DRB’s other business units.
• Negatives –
  • Bank tightening financing measures.

Valuation

• Maintained BUY with unchanged TP of RM3.36 (SOP).

Source: Hong Leong Investment Bank Research - 9 Apr 2013