DRB’s subsidiary KL Airport Services (KLAS) has proposed to privatise Konsortium  Logistik,  which  could  boost  its  capabilities  in  the warehousing, logistics and distribution business. While there could yet be synergies, trailing acquisition multiples are  not  that  cheap  at  23.6x FY12  P/E,  but more palatable on a P/BV basis. Ongoing  non-core asset sales will partially fund the GO.  The  SOP derived MYR3.30 FV  remains unchanged. Maintain BUY.

• MYR241m  for  61.6%  of  Konsortium  Logistik.  DRB-Hicom  (DRB)’s wholly-owned  unit, KLAS,  has entered into a conditional  share  sale and purchase agreement with Bendahara 1, a special purpose vehicle (SPV) of  Ekuiti  Nasional  (Ekuinas),  to  buy  the  latter’s  entire  61.61%  stake  in Konsortium Logistik (KLB MK, NR) at MYR1.55 per share. This triggers a mandatory general offer (MGO) for the remaining shares. The acquisition and  consequential  MGO  are  expected  to  be  completed  by  1QCY14. KLAS provides passenger and cargo handling, in-flight catering as well as  aircraft  engineering  services  to  nearly  60%  of  international  airlines landing  at  KLIA.  The  acquisition  will  turn  KLAS  into  an  integrated logistics services provider by adding KLB’s warehousing, distribution and supply chain management business into the fold.
• Comparable  with  Ekuinas’  2010  purchase  price.  Annualising  KLB’s 1H13  net  profit  of  MYR5.2m  implies  an  acquisition  P/E  of  37.4x  FY13 (1.9x  P/BV).  The  FY12  acquisition  P/E  of  23.6x  looks  relatively expensive  compared  to  Freight  Management  (FMH  FK,  BUY,  FV: MYR1.68)’s and Tasco (TASCO MK, BUY, FV: MYR2.30)’s 2013 P/Es of 12x and 10x  respectively. However,  on a P/BV basis, it is comparable to FMH’s (1.8x FY13), but higher than Tasco’s (0.9x FY13). Beyond current valuations, we think DRB sees room for synergies as profitability in the logistics  business  hinges  on  efficiency  and  economies  of  scale.  The acquisition of KLB could raise DRB’s proforma FY14 net gearing to 0.49x (from 0.44x) but could largely be covered by the latter’s proposed sale of Uni.Asia Life, now pending Bank Negara approval.
• Auto  sector  turnaround  a  re-rating  catalyst.  No  changes  to  our forecasts.  DRB  remains  attractive  for  its  deep  value  assets  and turnaround prospects at Proton.  Our  BUY call and  MYR3.30 FV  remain unchanged.

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Source: RHB