Highlights

DRB has revised its development plan for the remaining Tebrau landbank size (Glenmarie Heights) of 365.02ha in Johor at a GDV of RM5bn (from RM8bn), following the land disposal exercise of 248.48ha to Eco World for RM534.7m.

Management guided the development will have commercial and residential components (to make it a complete township) and developed over 15 years, with first phase targeted in 2nd quarter of 2014.

The landbank is strategically located within Economic Zone E Senai-Skudai of Iskandar Malaysia, which is within 10 minutes reach to Johor Bharu and Singapore via Eastern Dispersal Link.

Note that DRB bought the whole piece of 613.50ha landbank back in 2008 for RM722.4m.

Comments

The revised plan is within our expectations (as the landbank size has been halved), after DRB announced the land disposal exercise.

DRB has roped-in Eco World for it’s expertise in township development and branding exercise. Eco World management is related to SP Setia, a well-known developer in Malaysia.

The staggered 3-years payment from Eco World (land bank sales of RM534.7m) will be used to fund the revised development.

Overall, we are positive on the development, as DRB has: 1) Lowered its capex commitment for Glenmarie Heights; 2) Partly finance its remaining land development; 3) Build market confidence for the revised developments.

We have yet to impute any upside from DRB’s property development. We have only incorporated Tebrau’s landbank book value of RM730m for our SOP valuation. Hence the complete development is likely to add ~RM0.30 to our SOP.

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 - 16 Apr 2013