By Lawrence Yong
DRB-Hicom Bhd, often associated with national car Proton, has untapped value in property, banking and other services which makes the Malaysian conglomerate’s shares an attractive buy, analysts said.
Public Investment Bank’s research unit (PIVB) released a comprehensive review of the company on Monday and tagged a fair value for DRB-Hicom’s shares at RM3.53 based on a sum-of-parts valuation, nearly 25% higher than current trades at RM2.83 to RM2.87 on Bursa Malaysia.
“We believe its current share price is attractive and not fully reflecting the underlying value of vast assets within the group,” PIVB said. The company’s share price rose 14% in May alone.
Even though DRB-Hicom made the news recently for acquiring national carmaker Proton, PIVB said that it has other embedded gems. The bank-backed research house cited four significant assets that account for nearly 75% for the company’s market capital of about RM5.5 billion: Proton’s Shah Alam factory land, Tebrau land located in Iskandar Johor, a 70% stake in Bank Muamalat and a 32.2% stake in Pos Malaysia.
DRB-Hicom’s key companies include Proton, Bank Muamalat, Pos Malaysia, Alam Flora, KL Airport Services (KLAS), Puspakom and Glenmarie Properties. The conglomerate is 55% owned by Syed Mokhtar Al-Bukhary, a Malaysian billionaire, through his acquisition vehicle EtikaStrategi.
The company has orchestrated the turn around of its debt-ladden Proton unit, which was acquired in 2012, a near term key objective. Proton, Malaysia’s first national car project, which used to dominate the Malaysian car market in 1990s, lost pole position to Perodua’s Myvi in 2006. Analysts estimate that Proton now has about 18% market share, which makes it Malaysia’s second or third most popular car in a neck-to-neck race with Toyota.
On this front, PIVB also noted positively: “We believe DRBHicom will enter into a more comprehensive collaboration or partnership with a global player such as Honda or Volkswagen (VW) to revive Proton.”
Also of similar importance is its property division, which was expected to contribute more to the group. This division has lined up projects in Iskandar (Johor), Klang Valley and Melaka with a total gross development value (GDV) of about RM8 billion.
PIVB also noted that there was a potential for a tie-up between its banking and postal divisions. A joint venture, Pos Ar-Rahnu (Islamic pawnbroking), was gaining traction, PIVB noted.
“The extensive reach of Pos Malaysia (with more than 700 post offices and 300 pos mini) will enable Bank Muamalat to grow its Islamic banking services to many parts of Malaysia, in particular rural areas which are normally underserved,” it said.
The DRB-Hicom conglomerate was created in 1996 when The Heavy Industries Corp of Malaysia (Hicom), which was incorporated 16 years earlier, merged with Diversified Resources Bhd. In 2006, Syed Mokhtar, who according to a Forbes magazine survey is also Malaysia’s 8th richest, took over the entity with the aim of transforming the company.
The group’s pre-tax profits excluding exceptional items in FY12 and FY13 were RM543.4 million and RM624.8 million respectively. The company’s financial year ends in March. Although the automotive division accounted for 77% of its revenue in FY13, it was the services division that made up most of its pre-tax profits contributing 62% in FY13.
Looking ahead, other interesting developments to watch out for include DRB-Hicom’s maiden contribution from its armoured vehicles production contract. Through Deftech, it won a production contract in 2011 to supply armoured vehicles to Malaysia’s Ministry of Defence over a seven-year period. In addition, Deftech’s proposed acquisition of Composites Technology Research Malaysia (CTRM) will also enable the group to produce unmanned aerial vehicles (UAV) and provide composite technology for its automotive manufacturing.
Interestingly, PIVB also noted that foreign shareholdings of DRB-Hicom increased to 20.9% as at end-FY13 from 15.2% as at end-FY11.
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