DRB has multi-year latent earnings potential and hidden asset value, although time will be needed to rationalise its myriad businesses. Political risks from GE13 notwithstanding, we believe the current share price represents an attractive entry point for longer-term outperformance coupled with limited downside. A substantive collaboration arrangement with Honda could help to re-rate the stock. BUY.

Site visit to KLAS. Management recently organised a visit to KL Airport Services (KLAS) one of its three remaining concession businesses in DRB’s Services Division. KLAS is a wholly-owned subsidiary of the group and has a 36-year concession for KLIA operations till 2034. While KLAS only contributes a relatively small portion of group revenue and PBT, we believe the macro environment will support its continued strong earnings momentum. In the three years to FY12, KLAS recorded revenue CAGR of 24% and pre-tax profit CAGR of 378%. In 9MFY13, KLAS’ earnings formed 6.3% of recurring PBT. We believe the integrated logistics services (ILS) component that comprise supply chain management involving air freight, sea freight, trucking and warehousing could hold significant synergistic potential with Pos Malaysia, a 32.2%-owned associate of DRB.

Update on Bank Muamalat and Uni.Asia Capital. Management was confident of an imminent conclusion of the sale of Uni.Asia that could also potentially secure DRB’s status as a Shariah-compliant stock and increase its addressable investor base. While DRB officially remains in talks with Affin on the sale of a 30% stake in Bank Muamalat, we sense that the deal remains in the balance especially now that Affin reportedly has the added distraction of HwangDBS Investment Bank being up for sale.

DRB – A property giant in the making. DRB’s significant property assets remain overlooked by the market. Glenmarie Heights, a 1,517 acres township development in Zone E of the Iskandar Development Region will see its maiden launch end-2013. The 250 acres in Shah Alam currently occupied by Proton is worth RM0.52/share and is not yet included in our SOP valuation.

Source: RHB