Posted by asean_investor > 2013-04-15 17:26 | Report Abuse

The Malaysian economy proved resilient to the global recession and has witnessed strong growth in the last couple of years. For 2013, it’s expected to again witness a growth rate of ~5% driven largely by strong domestic demand. DRB-Hicom (1619.KL) has several catalysts in place to propel it to further growth while providing diversification and reach into various growing sectors of the economy. Best of all, valuations are attractive for a growing conglomerate. At RM2.55, the shares trade at ~18x FY13E consensus EPS of RM0.141, ~10x FY14E consensus EPS of RM0.253, and P/B of 0.7x, which is compelling given the company’s long term growth potential. The investment rationale for buying the stock is as follows: 1) Recent acquisition of Proton and CRTM to boost automotive segment growth: Automotive segment with 9M13 reported revenue of RM7.5bn (+188.5%, due to first time Proton consolidation) is the largest of the three business segments with top line contribution of c.77% (9M13). Proton acquisition gave DRB-Hicom a manufacturing and technology platform to become an integrated automotive player in the region and thus to tap future growth opportunities in the automotive sector. Proton’s acquisition is currently under a restructuring plan and is expected to become the company’s main growth driver. . Proton turnaround is focused on rationalising its supply chain which should help in quality and cost control besides enhancing operational efficiency. Further, the Proton Edgar and EON merger should rationalise distribution network and provide business and cost synergies. New model launches such as Preve Hatchback, Global Small Car, and strategy of penetrating overseas market including Thailand, Indonesia and Australia should further boost growth. Proton’s presence throughout the industry value chain makes it a preferred local partner for global automotive leaders looking to enter the Malaysian market. For a successful turnaround of Proton, the group needs partners, technology and platforms to exploit its capacity. It’s collaboration agreements with Honda, Mercedes Benz, Mitsubishi, Volkswagen AG (VWAG), Suzuki, Isuzu, and Audi offer opportunities to reorganise component manufacturing to upscale its offerings and capacity. Recently, Honda committed capex of RM1bn to be incurred in the next 3 years to make Malaysia its regional manufacturing hub for its hybrid vehicles, Insight and Jazz. Honda is expected to expand its Pegoh plant to double its capacity to 100k units per year. Proton should benefit from Honda’s capex commitment. Further, Proton should also benefit from VWAG’s plan of ramping up capacity to 50k units’ p.a. to fulfil its regional production hub plan and meet ASEAN exports needs by 2017/2018. Check out our full story http://www.asean-investor.com/drb-hicom-synergies-poised-to-kick-in/