This article first appeared in The Edge Financial Daily, on May 9, 2016.
DRB-Hicom Bhd
(May 6, 97 sen)
Maintain outperform with an unchanged target price (TP) of RM1.39: DRB-Hicom Bhd has announced that its indirect wholly-owned subsidiary company, Hicom Megah Sdn Bhd, had terminated the share sale agreement to dispose of a 90% equity interest in Corwin Holding Pte Ltd.
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<p><img alt="persona_fd_090516" class="caption" src="http://edgemarkets.s3-ap-southeast-1.amazonaws.com/pictures/persona_fd_090516.png" style="color:#888888; font-family:asap; font-size:12px; font-weight:normal; line-height:1.45em" title="The new orwin owns a leasehold property, an eight-level shopping mall building known as The Verge, whose disposal were to help DRB-Hicom unlock value of non-core assets within the group. Nevertheless, due to inability of the purchaser to fulfil its contractual obligations on the agreed completion date, Hicom Megah decided to abort the proposed disposal. We did not factor in any incremental change to our valuation when the proposed sale was announced earlier, as we had already imputed The Verge’s revised net asset value in our group’s valuation. Hence, we maintain our “outperform” call on DRB-Hicom with an unchanged sum-of-parts TP of RM1.39.
DRB-Hicom has an effective stake of 90% in Corwin. The disposal price for the 90%-stake was estimated to be S$285.3 million (RM842.3 million). The proceeds were expected to be used to pay for the transaction espenses of S$21.4 million, Corwin’s borrowings of S$85.52 million and the balance were to be utilised for working capital requirement of the group within 12 months of the completion date. Management estimated that the gain arising from the proposed disposal would be approximately RM427.47 million.
While the news of the cancellation of the proposed disposal is a dampener, we believe the financial impact is minimal on DRB-Hicom. We believe a near-term key catalyst for DRB-Hicom will be the launch of three new models by Proton — new Proton Perdana, followed by Proton Persona and Saga (facelift models). DRB-Hicom is now trading at an undemanding valuation of 0.26 times price-to-book value. — PublicInvest Research, May 6