DRB Hicom; Buy
Price Target: RMRM3.60; DRB MK

DRB has announced the sale of two freehold parcels of land: - i) 613.79 acres in Tebrau, Johor for RM534.73m or RM20 psf and ii) 9.6 acres in Jalan Kuching, KL for RM69.92m or RM167 psf. The Johor land is not converted to mixed residential and commercial status and is currently designated as agriculture. The net book value is a combined RM112.92m or RM4psf. The Johor land is part of the c.1,500 acres (GDV RM8bn) called Glenmarie Heights which DRB tentatively will launch in 2014. Hence, with the sale, DRB will own 902.8 acres. The proceeds from the sale are staggered with the full payment only completing in three years from the unconditional date.

The land in Jalan Kuching, Kuala Lumpur is currently designated as industrial and has net book value of RM11.15m. The sale and purchase agreement was completed on 18 March and full payment has been made.

The sale of the Johor Land will result in a net gain of RM89m for FY14F and the Kuala Lumpur land a net gain of RM54.6m for FY13F assuming the respective completion dates. Based on our estimates, this will help bring net gearing levels down to 0.49x and 0.51x for FY13F and FY14F respectively from our estimates of 0.51x and 0.53x currently.

Overall we think this is an opportunistic sale for DRB given the relatively attractive selling prices (RM20 psf for the Johor land which is on par with our SOP value and also recent transactions in the area) and is positive for its balance sheet. The sale of land in Johor is also a much needed catalyst to kick start the development there while also giving it upfront working capital to develop the remaining land. Although with the the influx of activities in Iskandar, DRB could have realised higher value by developing the land, its reputation in the State is untested and hence the sale will give it a much needed headstart. We maintain our BUY rating and TP of RM3.60 which is based on a 20% discount to SOP.

Source: HwangDBS Research - 9 Apr 2013