News

• DRB has proposed to dispose several lands, properties and businesses (please refer to appendix) to major shareholder Tan Sri Syed Mokhtar for a consideration of RM1.9bn, which will be satisfied through transfer of 1,243.45 acres of freehold land in Tebrau, Johor (valued at RM1.6bn) and RM288.7m cash. The proceed of the cash will be used to repay RM281.7m Islamic Medium Term Note (ITMN) and remaining RM7m for the expenses related to the exercise.

• Post the disposal, DRB is expected to realize gain of RM849.4m.

• The disposal exercise is expected to complete by 1QCY19.

Comments

• We are positive on exercise, as part of DRB’s rationalization plan in disposing non-core assets to improve its balance sheet and realize its investments gain.

• The valuation of RM1.9bn is higher than our assumed value of RM1.4bn for DRB’s property segment.

• We note that businesses (namely 1. Horsedale property development and management of a golf resort and a hotel; and 2.Rebak Island - operation of a marina resort and property development) within the proposed disposal exercise, contributed marginally to DRB’s bottomline in 9MFY18 and 12FY17 at RM5.1m and RM6.7m respectively.

• The assets disposal also includes DRB’s remaining Johor Glenmarie landbanks of 778.8 acres which was planned for mixed development.

• Going forward, DRB property segment will focus more on development and sale of industrial properties.

• DRB has an existing 600 acres of landbanks for development into industrial parks. These landbanks are located in: 1) Tanjung Malim, Perak (Proton City); 2) Shah Alam, Selangor (existing Proton Plant); 3) Bukit Kayu Hitam, Kedah (Northern Gateway); and 4) Alor Gajah, Melaka (near to Honda assembling plant).

• The transfer of the 1,243.45 acres will triple the size of DRB’s existing landbanks to 1,843.45 acres. The group targets to develop the 1,243.45 acres landbank with GDV of RM4.3bn over 10 years commencing 2020. We note the landbank is located near to matured townships of Mount Austin, Setia Indah and Bandar Dato Onn.

Risks

• Prolonged bank tightening measures on lending rules.

• Slowdown of the Malaysia economy affecting car sales and property sales.

• Global automotive supply chain disruption.

• Continued drag from Proton and Pos.

Forecasts

• Unchanged. Earnings impact would be immaterial.

Rating

BUY ↔

• With the emergence of Geely as strategic foreign shareholder for Proton, we can expect re-rating catalyst on DRB’s valuation.

Valuation

• Maintain BUY on DRB with unchanged Target Price of RM2.88 based on 10% discounts to SOP.

Source: Hong Leong Investment Bank Research - 9 Mar 2018