News

DRB announced that it’s 51% owned Uni.Asia Capital (UAC) has submitted an application to BNM for the approval of the Minister of Finance (MoF), to review a proposal for UAC to enter into a sale and purchase agreement with a company to be respectively owned by The Prudential Insurance Company of America and Bank Simpanan Nasional on a 70%:30% shareholding basis.

The proposal involves the proposed disposal by UAC of its 100% equity interest in Uni.Asia Life (UAL) to the Purchaser for a total cash consideration of RM518m, subject to any adjustment therein.

Comments

We are positive that DRB is finally disposing UAL (subject to MoF’s final approval), and we expect disposal of the other 34.7% Uni.Asia General (UAG) to follow soon.

A successful disposal could qualify the counter as Syariah Compliant, widening list of potential investors and serve as a potential re-rating catalyst.

Based on sales price of RM518m, UAL is valued at 1.34x FY03/13 P/B (based on revised statement of account after adopting new accounting policy), relatively cheaper than previous insurance company disposal:

• Kurnia Insurance at 2.05x P/B in Apr 2012.
• MAA Assurance at 1.36x P/B in Sept 201.
• Berjaya Sompo Insurance at 3.35x P/B in May 2011.
• Pacific Insurance at 1.57x P/B in Mar 2011.
• Jerneh Insurance at 2.25x P/B in Sept 2010.

However, its 51% effective stake is valued at RM264.2m, significantly higher than our valuation of RM115.7m, i.e. valuation accretion of ~RM150m or 7.6sen/shares.

We remained positive with DRB’s long term restructuring plan, transforming into a leaner operational conglomerate with regional presence (automotive) and extracting synergies within the group of companies.

Risks

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

Source: Hong Leong Investment Bank Research - 16 Aug 2013