DRB has proposed to dispose its 100% owned Hicom Power for a total cash consideration of RM575m to Malakoff and expected disposal gain of RM446.2m or RM0.23/share. The exercise is expected to complete by end 2012.
DRB’s original cost of investment was RM294.6m back in Dec 2008 and has cumulatively received RM252.7m dividend from Hicom Power.
Hicom Power provides operation and maintenance services to Tanjung Bin’s 3x700MW power plant for a concessionaire period of 25 years commencing Sept 2006.
The proceeds will be used to pare down debts by ~RM574.1m (reduce net gearing to 48.1% from 57.2%) after incurring high debts in acquiring Proton in mid-2012. Interest saving expected to be ~RM37.2m pa due to lower gearing.
DRB’s net asset will also improve to RM3.49/share from RM3.26/share (as at Jun 2012).
Based on FY03/12 income statement, Hicom Power contributed RM57.4m or 4.2% of DRB’s net profit.
The disposal is subject and conditional approvals by: 1) shareholders of DRB; 2) shareholders of MMC; 3) consent of DRB’s financiers; and 4) relevant authorities/parties.
Comments
We are not surprise with the disposal, as it was being hinted by COO Datuk Seri Che Khalib during our luncheon dialogue (refer to our report dated 18/10/2012).
We are positive on DRB’s on-going effort in restructuring its business structure (disposing non-core assets), reducing gearing level, lowering group financing cost as well as unlocking hidden value.
We expect more positive newsflow within the next few months such as Proton’s restructuring plan, Uni.Asia disposal, Bank Muamalat M&A etc.
Risks
Prolonged bank tightening measures on lending rules.
Slowdown of Malaysia economy affecting car sales.
Global automotive supply chain disruption.
Slow integration of Proton and Pos.
Forecasts
Unchanged, pending the completion of disposal.
Rating
BUY
Positives –
Acquiring Proton (restructuring of Proton), to turn DRB into a major integrated automotive player in the region.
Partnering VW group to set up regional hub in Malaysia.
Honda Malaysia to set up regional hub for Hybrid car.
Severely undervalued counter.
Deftech awards of RM7.55bn over 7 years.
Synergy of POS with DRB’s other business units.
Negatives –
Bank tightening financing measures.
Valuation
Maintained Buy recommendation with unchanged Target Price of RM3.43.
Source: Hong Leong Investment Bank Research - 19 Oct 2012
This book is the result of the author's many years of experience and observation throughout his 26 years in the stockbroking industry. It was written for general public to learn to invest based on facts and not on fantasies or hearsay....
herbert 456
Well said ....
2012-10-19 12:17