DRB-Hicom Bhd (Feb 5, RM2.57)
(Feb 5, RM2.57)
Maintain buy at RM2.57 with a revised target price of RM3.65 (from RM3.35): DRB-Hicom is a deep value stock (43% discount to sum-of-parts [SOP]). But a privatisation is unlikely, even with the perceived sensitive nature of some of its businesses such as Defence Technologies Sdn Bhd (Deftech) where there is little disclosure. Moreover, the privatisation rumour is not new and would have already occurred at lower levels.
However, it may spin off its motor business given the ongoing capital requirements for Proton, Lotus and the expansion of Volkswagen capacity by 50,000 units by 2016/17. We are confident DRB-Hicom will turn around Proton given recent developments:
(i) rationalising the distribution business;
(ii) tiering auto parts suppliers;
(iii) purchasing engine from Petroliam Nasional Bhd; and (iv) collaboration with Honda.
We expect Bank Muamalat Malaysia Bhd and Pos Malaysia Bhd to be the anchors of its services division (three-year earnings before interest and tax [Ebit] compound annual growth rate [CAGR] of 14%).
The bank is expected to register at least RM200 million profit before tax for the financial year ending March 31 (FY13) (first half: RM147 million) driven by higher financing income, fee and non-funded income.
The expansion of Pos’ courier business, transformation into a one-stop retail shop, and Ar-Rahnu, will drive up profitability further.
Alam Flora Sdn Bhd, Puspakom Sdn Bhd and KL Airport Service Sdn Bhd have vast potential with the expansion to two new states, potential mandatory inspection of private vehicles and opening of klia2 respectively.
We raise our target price by 9% to RM3.65 (20% discount to SOP value) after adjusting for the other landbank and a revised target price for Pos of RM4.60 (against market value).We cut forecast FY13 net profit by 8% after factoring in our forecasts for Pos, but raised FY15F net profit by 7% with the inclusion of new property launches.
We expect property to be its fastest growing division (three-year Ebit CAGR of 174%), led by new launches, Glenmarie Gardens and Glenmarie Puchong, in FY14/FY15. This division is under-appreciated; it offers RM21 billion gross development value and 3,736 acres of land. — HwangDBS Vickers Research, Feb 5
This article first appeared in The Edge Financial Daily, on February 6, 2013.