News  In an announcement to Bursa Malaysia, DRB-HICOM (DRB) via its indirect wholly-owned subsidiary companies proposed to acquire 3 parcels of land measuring a total of 200 acres located at Bandar Kota Perdana, Kedah from Northern Gateway Free Zone Sdn Bhd (NGFZ) for a cash consideration of RM130.7m.

 Bandar Kota Perdana is strategically located at the border of Malaysia and Thailand and is within the vicinity of Bandar Bukit Kayu Hitam, which has been identified by the Kedah State Government to be one of the future growth areas in Kedah.  The two land acquisitions are transacted through its subsidiaries namely: (i) Konsortium Logistik Berhad (KLB) which proposed to acquire 100 acres of land comprising 12.80 acres and 87.20 acres for a total cash consideration of RM65.34m from NGFZ, and (ii) HICOM Vertex Sdn Bhd (HVSB) which proposed to acquire 100 acres of land comprising 28.43 and 71.57 acres for a total cash consideration of RM65.34m from NGFZ.

 The proposed lands acquisitions are expected to be completed by 4Q 2015.

Comments  We are neutral on this latest corporate development by DRB because any positive contributions to bottomline would take 2-3 years.

 These two pieces of land form an integral part in the development of the Integrated Immigration, Custom, Quarantine and Security (ICQS) Complex at Bukit Kayu Hitam. DRB in Feb 2015 acquired the concession for the proposed development of the ICQS Complex at Bukit Kayu Hitam for a cash consideration of RM20m of 100% equity interest in Northern Gateway Infrastructure Sdn Bhd (NGISB).

 Kota Perdana Land is strategically located adjacent to the proposed ICQS Complex construction site and within the vicinity of Bandar Bukit Kayu Hitam.

 The integrated logistics hub (ILH) involves the development of a comprehensive transportation hub (catering for road, rail, air and sea), container depot and container freight station, logistics, warehouse and distribution centre and one-stop centre for repairs, spares and supplies over 100 acres.

 KLB has identified potential growth industries to be supported by the ILH such as halal consolidation centre and new gateway for import and export of vehicles.

 The acquisition would put a small dent to DRB’s net debt and net gearing of RM4.3b and 0.57x, respectively as at 31 Dec 2014.

Outlook  Earnings contributions are expected to come gradually from the RM7.55b AV8X8 contract while the property division is expected to contribute positively as the group plans to launch property development projects with a total estimated GDV of RM13b. Assembly volume for Volkswagen vehicles should also gather pace.

 However, Proton continues losing market share and automotive division dragged down losses.

Change to Forecasts  No changes to our earnings forecast.

Rating & Valuation  Maintain Market Perform with a SoP-derived TP of RM2.15.

Risks to Our Call  Better-than-expected performance in the automotive division.

Source: Kenanga