DRB Hicom; Buy; RM2.61
Price Target: RM3.60; DRB MK

DRB has announced that Uni.Asia Capital Sdn Bhd (UAC) has submitted an application to Bank Negara Malaysia (BNM) to review a proposal to enter into a S&P agreement with Prudential Insurance Company of America and Bank Simpanan Nasional on a 70:30 basis for the sale of Uni.Asia Life Assurance for RM518m cash. UAC is 51%-owned by Gadek which is in turn a wholly-owned subsidiary of DRB and 49% by UOB Malaysia.

This approval pertains to the sale of Uni.Asia’s life assurance business while the general insurance is still pending approval by BNM. DRB's 51% share of the sale proceeds works out to be RM264m or RM0.14/DRB share where the proceeds will likely be used to pare down borrowings. As at 31 March 2013, DRB has a net debt of RM5.3bn (stripping out banking related cash) or net gearing of 0.6x while it also has two principal repayments amounting to c.RM1bn due in 2013 and 2014. This should be comfortably met by the sale of land in Johor and Klang Valley for RM605m and also Hicom Power amounting to RM575m.

According to its latest annual report, Uni.Asia Life Assurance made revenue of RM374m in FY13 (RM403m in FY12) and profit after tax of RM17m in FY13 (RM21m in FY12). Total shareholders funds as at 31 March 2013 were RM366m. Hence, the sale translated into FY13 P/BV of 1.4x which is at the lower end of previous insurance related transactions of 1.8-2.2x but appears fair given its relatively smaller size.

DRB’s share price has been just flat YTD, even post the general elections, the outcome of which in our view removes the overhang on Syed Mokthar related stocks. Key catalysts would be i) swifter than expected turnaround for Proton with an accompanying strong partner; ii) faster-than-expected property launches given its vast land bank; and iii) potential M&A for Bank Muamalat. We maintain our BUY rating and TP of RM3.60 which is based on a 20% discount to SOP.

Source: HwangDBS Research - 16 Aug 2013