Automotive (Overweight)

A Key Regional Auto Player to be Born

'''' DRB to acquire Khazanah's 42.7% stake in Proton, triggering MGO at RM5.50. Total cost estimated at RM3.02bn.

'''' Post the acquisition in FY03/13: 1) DRB to realize RM2.4bn one-off gains of negative goodwill; 2) net gearing increase to 45.3%; and 3) NTA/share increase to RM3.13.

'''' DRB become key regional automotive player with own Proton marque, and exporting VW to regional markets.

'''' DRB not expected to inject cash/capex into Proton in the near term.

'''' DRB to leverage on its strong partnerships with foreign automotive players, in restructuring Proton to improve operational efficiency and products offering.

'''' Maintain BUY on DRB (unchanged TP of RM2.90) and downgrade Proton to Hold (lower TP of RM5.50).

''

KLCI: Crucial 200-d SMA to curb more selldown

'''' Although selling pressures are expected to continue today, it is likely to be cushioned by the overnight rebound in the European markets as investors re-focus on measures taken by officials to toughen budget laws and make Greek debt more sustainable deserve far more attention than these rating changes, which as usual are lagging fundamental developments.

'''' As long as KLCI continues to remain its posture above the 200-d SMA (now at 1501), KLCI is still likely to slowly fill the huge gap of 1529-1546 recorded on 5 Aug 11.

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DRBHCOM: Short term positive after recent breakout

'''' Following the breakout above the downtrend line channel and 200-d SMA coupled with improving technical readings, DRBHCOM is expected to rally further towards the 50% FR (at RM2.45) and RM2.62 (weekly upper Bollinger band).

'''' A breakout above RM2.62 will drive prices higher to a more formidable resistance near RM2.85 (38.2% FR). Immediate supports are situated near daily mid Bollinger band (RM2.05) and 100-d SMA (RM2.02), followed by daily lower Bollinger band of M1.98.

'''' Cut loss below RM1.98.