News       DRB-Hicom has entered into a sale and purchase agreements with Eco World Development Sdn Bhd (Eco World) to dispose of lands in Iskandar Malaysia (IM), Johor, and Segambut, Kuala Lumpur for a total cash consideration of RM607.4m via its subsidiaries -Neraca Prisma Sdn Bhd, Benua Kurnia Sdn Bhd and USF-Hicom.

Neraca Prisma and Benua Kurnia have agreed to dispose of parcels of land measuring 359.9 acres and 253.9 acres in IM respectively to Promosi Etika Sdn Bhd for a total sum of RM534.7m (RM20 psf). The proposed disposals are expected to be completed in 4QFY2014.

Meanwhile, USF-Hicom (on 8 Feb 2013) has sold off its 9.6-acre land in Segambut to Summer Nights Sdn Bhd for RM69.9m (RM167 psf). The disposal was completed on 18 March 2013.

Both Promosi Etika and Summer Nights are involved in development and construction, and are wholly-owned subsidiaries of Eco World, a land and property investment company.

Comments      The land disposals allow DRB-Hicom to: (i) capitalise on the increasing demand for lands in Johor by selling the lands at an attractive price and (ii) unlock the value of its investment in Segambut at a profit.

With the sale of the lands in Johor, DRB-Hicom’s remaining land bank in the state stands at 902.8 acres. We understand that the sales proceeds will be used as working capital as well as to finance the group’s future property development activities.

The group is expected to record a net gain of RM89.1m from the Johor land disposals for FY14 as the payment for the lands is based on staggered deferred sale consideration for three years.

Net gain from the land sale in Segambut is RM54.6m and is booked into its FY13 earnings.

Outlook     Earnings contribution from its property division is expected to increase further (from 1% in FY12) as the group plans to launch property development projects with a total gross development value of RM13.3b in 2013-15.

Forecast      Incorporating the net gain from the land disposals, our forecast FY13F and FY14F EPS have been raised by 7%-18% to 34 sen and 23 sen respectively.

The group’s net gearing is expected to be reduced from 0.99x to 0.98x in FY13 and from 0.63x to 0.62x in FY14.

Rating     Maintain MARKET PERFORM

At the current price, the stock offers a total return of 7%.

Valuation     No changes to our core net profit forecasts and SOPV-based target price of RM2.70.

Risks     Economic sentiment.  Uncertainties and weak consumer.

Source: Kenanga