Highlights/ Comments

• DRB has announced the acquisition of 200 acres land for RM130.68m (RM15psf) through subsidiaries - Konsortium Logistics (KLB) and HICOM Vertex (HVSB). Note that the current land title is still under agriculture purpose.

• Concurrently, DRB has also announced the acquisition of 100% equity stake in Northern Gateway Infrastructure SB (NGISB) for RM20m. NGISB holds the concessionaire for the proposed development of the Integrated Immigration, Custom, Quarantine and Security (“ICQS”) Complex at Bukit Kayu Hitam, Kedah.

• The purchased 200 acres land is located strategically adjacent to the proposed ICQS Complex construction site and is within the vicinity of Bandar Bukit Kayu Hitam, one of the major growth areas in Kedah.

• In line with DRB’s long term growth, KLB’s land will be developed into an Integrated Logistic Hub (ILH) next to ICQS, becoming the preferred entry point between Thailand and Malaysia with provision of fast clearance and a comprehensive and extensive free trade zone area to support the logistic requirements.

• On the other hand, HVSB’s land is envisioned to become a tourist hub complete with premium outlets, budget hotels, as well as commercial and residential development, tapping into the growing cross-border traffic between Malaysia and Thailand.

Risks

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

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.
• Weakening of MYR.

Valuation

• Maintained Buy on DRB with unchanged Target Price of RM2.75 based on 20% discounts to SOP.

Source: Hong Leong Investment Bank Research - 31 Mar 2015