Results

Above - Reported 4QFY3/13 core earnings of RM228.0m, and FY3/13 of RM297.4m, outperforming HLIB’s RM151.0m and consensus’s RM225.8m.

Deviations

Strong contributions from Service division, maiden recognition from the RM7.55bn AV8s contract and account readjustment related to Proton acquisition.

Dividends

Recommended final dividend consisting of 0.5 sen less 25% tax and 4.0 sen tax exempted. Full year net dividend was 5.5 sen, above our expectation of 4.5 sen.

Highlights

FY13 revenue increased 91.1% yoy due to the consolidation of Proton Group (including Lotus), contribution of AV8s contract and higher property sales in the year.

Overall Group EBIT margin dropped 2.3%-pts due to full year impact from the consolidation of Proton and Lotus (remain loss-making in 4Q13), despite stronger contribution from service and property divisions.

Contribution from JV and Associates remained flat yoy as margin squeeze on the automotive divisions and lower property contribution were offset by higher POS earnings.

There were several adjustments to the group’s account in 4Q13, as well as restatement of FY3/12 accounts related to the acquisition of Proton back in 26 June 2013. A restatement of negative goodwill to RM1.28bn from RM971.5m in 4Q12, while 4Q13 reported substantially lower D&A expenses at RM91.5m vs. RM215-240m in 1Q-3Q13.

Net gearing improved to 45.0% in 4Q13 from 48.1% in 3Q13, as DRB continued to restructure the group. DRB has completed the disposal of USF land for RM70m (gain of RM54.6m) in 4Q13 and Johor land for RM535m (gain of RM89.1m) in 1Q14.

Risks

• Slowdown of Malaysia economy affecting car sales.
• Global automotive supply chain disruption.
• Slow integration of Proton and Pos.

Forecasts

Unchanged, pending upcoming FY03/13 analyst briefing (to be determined at a later date).

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 on DRB with unchanged Target Price of RM3.36 based on 20% discounts to SOP.

Source: Hong Leong Investment Bank Research - 31 May 2013