DRB-Hicom Bhd
(Nov 11, RM1.97)
Maintain “buy” with a target price of RM3.60: DRB-Hicom’s subsidiary KL Airport Services Sdn Bhd (KLAS) is acquiring air freight operator Gading Sari Aviation Services Sdn Bhd (Gading Sari) for RM72 million in cash. The company said the transaction was on a “willing buyer, willing seller” basis and after taking into account Gading Sari’s audited net asset value (NAV) of RM7.2 million as at Dec 31, 2013, audited profit after tax of RM2.2 million and future earnings.  We are of the view the purchase is steep at 10 times the NAV and 33 times financial year 2013 earnings.

Earlier this year, DRB-Hicom assumed control of haulier Konsortium Logistik Bhd  for about RM390 million via a takeover offer price of 2 times price-to-book value  and a 23.6 times trailing price-earnings ratio. This is also part of KLAS’ bigger plan in providing an  intermodal logistics solutions and supply chain management (SCM) and will help transform the group to become a fully-integrated logistics service provider providing an end-to-end SCM. It will be funded via internal funds and borrowings.

While the price is steep, this is a relatively small initial investment in the air cargo transport sector. DRB-Hicom now has the opportunity to scale up its logistics operations along with Pos Malaysia. Bhd. We maintain “buy”, with an unchanged fair value of RM3.60.— AmResearch Sdn Bhd, Nov 11

This article first appeared in The Edge Financial Daily, on November 12, 2014.