Highlights/Comments

DRB  announced  another  internal  restructuring  exercise,  in order  to  streamline  its  Isuzu  JVs  operations.  Major shareholders  of  Isuzu  Malaysia (IMSB), both DRB and Isuzu will  dispose  25.57%  (for  RM20.46m)  and  25.43%  (for RM20.34m)  of  IMSB, respectively,   to Isuzu HICOM Malaysia (IHM),  another  entity within DRB Group.

IMSB  is  involved  in  the  importation,  assembly  and distribution  of  Isuzu  vehicles,  components  and  parts,  while IHM  is  principally  in  the  manufacturing,  assembly  and  sale of commercial vehicles.

Based  on  FY03/14  earnings  of  RM11m  and  NAV  of RM77.5m,  the  price  is  fairly  valued  at  Trailing  P/E  of  7.3x and P/NAV of 1.03x.

We  are  positive  with  DRB’s  ongoing  restructuring  exercises, in  order  to  realize  synergies  within  the  group.   However,  the group  remained  dragged  by Proton’s  turnaround  uncertainty.

Risks

• Slowdown  in the Malaysian  economy.
• Global automotive  supply chain disruption.
• Sudden  jump in fuel  prices and interest rate.
• Depreciation  in  RM.

Rating

BUY

Positives  –

• DRB  becoming  into  a  major  integrated automotive player in the region  through  Proton, VW and Honda.
• 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.
• Competitive  automotive  segment.

Valuation

• Maintained  Buy  on  DRB  with  unchanged  Target  Price  of RM3.00  based on 20% discounts to SOP.

Source: Hong Leong Investment Bank Research - 17 Nov 2014