DRB-HICOM (BUY, EPS ) NEWSBREAK INDUSTRY: NEUTRAL

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1 d DRB-HICOM (BUY, EPS ) NEWSBREAK INDUSTRY: NEUTRAL Acquiring Konsortium Logistic Highlights Comment Risks DRB has announced that its 100% owned KLAS has acquired 61.61% stake in Konsortium Logistic (KLB) from major shareholder Bendahara 1. The total consideration was RM241m (RM1.55/share) for the acquisition of 155,462,322 ordinary shares of KLB. The acquisition will be funded through combination of internal funds and external borrowings (not yet determined). Following the exercise, KLAS is obligated to extend a mandatory general offer for the remaining 96,856,036 ordinary shares of KLIB, which is not owned by KLAS at offer price RM1.55/share. The whole exercise is expected to complete by 1Q14. The acquisition of controlling stakes in KLB by KLAS was inline with DRB s focus to turn KLAS into a leading integrated logistic (warehouse, distribution and supply chain) service provider in Malaysia, supported by DRB group of businesses. KLB provides total logistics services and inventory solutions, which include container haulage, freight forwarding, shipping agency and chartering, warehousing and distribution, and insurance agency. KLB has been providing logistics services to leading domestic automotive players Perodua, Proton and Naza. Other major customers include Petronas Carigali, Tenaga and Mass Rapid Transit Corp (MRT). Despite the relative expensive valuation (See Figure #1), we believe the acquisition exercise represent another significant milestone to restructure DRB group and extracting synergies within the group. KLAS will integrate with KLB, supporting DRB s automotive division as well as other businesses such as PosM and Scott & English. Malaysia economy slowdown. Global automotive supply chain disruption. Sudden jump in fuel prices and interest rate. Depreciation RM. Forecasts Unchanged given the relatively immaterial KLB s earnings. Rating Valuation BUY Positives Acquiring and 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. Weakening of MYR. Maintained Buy on DRB with unchanged Target Price of RM3.14 based on 20% discounts to SOP. HLIB Research PP 9484/12/2012 (031413) 28 October 2013 Price Target: RM3.14 ( ) Share price: RM2.46 Daniel Wong kkwong@hlib.hongleong.com.my (603) KLCI 1818 Expected share price return 27.6% Expected dividend return 1.8% Expected total return 29.5% Share price (RM) DRB (LHS) KLCI (RHS) Oct-12 Dec-12 Mar-13 May-13 Jul-13 Sep-13 (KLCI) Information Bloomberg Ticker DRB MK Bursa Code 1619 Issued Shares (m) 1,933 Market cap (RM m) 4,756 3-mth avg. volume ( 000) 1,790 Price Performance 1M 3M 12M Absolute Relative Major shareholders Etika Srategy 55.9% EPF 9.7% Skagen 4.2% Summary Earnings Table FYE Mar (RM m) 2013A 2014E 2015E 2016E Turnover 13,135 15,737 17,578 19,144 EBITDA 1,427 1,424 1,667 1,951 Pre-tax Profit 1, ,125 Rpt. net profit Norm. net profit Norm. EPS (sen) P/E (x) Book Value (RM) P/B (x) Net Dvd Yield (%) Net Gearing (%) ROE (%) ROA (%) HLIB Page 1 of 5 28 October 2013

2 Figure #1: Valuation of KLB F Y12 1H13 Item (RM m ) (R M m ) T otal Assets G oodw ill C ash T otal Liabilities Loans Equity R etained Profits Bo o k Valu e BV/Sh are (sen ) P/B NT A NT A /Sh are (sen ) P/NT A Revenue Logistic s Servic e H aulage & Value Add Servic es EBIT DA Reported PAT Adjusted PAT EPS (sen ) P/E (x) * EV/EBIT DA (x) * KLB * An n u alized Figure #2: DRB-Hicom SOP Valuation Division Stakes (%) Value (RMm) RM/Share Basis Autos Various 3, FY14 PE 10x Puspakom DCF with WACC of 10.0% KLAS DCF with WACC of 10.0% Alam Flora DCF with WACC of 10.0% HICOM Power Disposal Price Bank Muamalat 70 1, FY13 PB 1.4x Scott & English FY14 PE 8x Uni.Asia Life FY13 PB 1.5x Uni.Asia General FY13 PB 1.5x POS FY14 PE 12x Property Various 2, FY13 PB 1.0x 9, FY13 Net Debts (Holdings) (2,308.6) (1.19) Estimated as at end FY2013 SOP (RMm) 7, Target Price (RM) 3.14 Holding Company Discount 20% DRb announced that its 100% owned KLAS has acquired 61.61% stake in Konsortium Logistic (KLB) for a consideration of RM241m (RM1.55/share). Based on the acquisition price of RM1.55/share, the valuation is relatively expensive at 2.1x of 1H13 P/NTA, annualized 46.5x of FY13 P/E, and annualized 12.4x of FY13 EV/EBITDA. However, we believe that DRB group will extract synergies from the acquisition, given that KLB has been a major logistic player in central and southern Peninsular Malaysia. KLB has been providing logistic services to leading domestic automotive players such as Perodua, Proton (DRB owned 100%) and Naza. Other major customers of KLB include Petronas Carigali, Tenaga and Mass Rapid Transit Corp (MRT) * No of Shares 1,933.2 As at Q1FY13 HLIB Page 2 of 5 28 October 2013

3 Financial Projections Income statement Cashflow Revenue 6,878 13,135 15,737 17,578 19,144 EBITDA 657 1,427 1,424 1,667 1,951 Operating cost -6,221-11,708-14,314-15,910-17,193 Net interest received EBITDA 657 1,427 1,424 1,667 1,951 Working cap changes 992-2,087-1, Depreciation Taxation EBIT ,125 Others -1,325 1, Interest income Operating cashflow ,139 1,572 Interest expense Capex & acquisitions -2,615-1,085-1,000-1,000-1,000 JVs & Associates Free cashflow -2, , Exceptionals 1, Other inv cashflow -2, Pretax profit 1,821 1, ,125 Net borrowings 2,888 1, Taxation (Inc Def Tax) Share issuance Minorities Dividends paid Net profit 1, Other fin cashflow Core Profit (Ex Def Tax) Net cashflow -2, , No of shares (m) 1,933 1,933 1,933 1,933 1,933 Forex translation Rep. EPS (sen) Beginning cashflow 7,737 5,693 6,035 4,301 4,011 Core EPS (sen) Ending cashflow 5,693 6,035 4,301 4,011 4,121 Balance sheet Valuation ratios Fixed assets 4,973 4,984 5,230 5,432 5,606 Reported basic EPS (sen) Other long-term assets 18,883 19,914 21,973 23,559 25,283 Core basic EPS (sen) Other short-term assets 3,300 3,512 2,614 2,323 2,289 Core FD EPS (sen) Working capital 4,041 5,581 6,865 7,717 8,419 PER (x) Receivables 3,195 4,306 5,159 5,762 6,276 FD PER (x) Payables Net DPS (sen) Inventory 1,519 1,990 2,492 2,818 3,089 Net DY (%) Net cash -2,327-3,193-4,201-4,543-4,625 BV/ share (RM) Cash 3,040 3,284 2,386 2,095 2,061 PB (x) ST debt -1,892-2,809-2,809-2,809-2,809 FCF/ share (sen) LT debt -3,476-3,668-3,778-3,829-3,877 FCF yield (%) NA NA NA Shareholders' funds 6,556 7,101 7,427 7,859 8,449 Market capitalization 4,756 4,756 4,756 4,756 4,756 Share capital 1,720 1,720 1,720 1,720 1,720 Net cash -2,327-3,193-4,201-4,543-4,625 Reserves 4,836 5,381 5,708 6,139 6,729 Enterprise value 7,083 7,949 8,957 9,299 9,381 Minorities 1,216 1,254 1,327 1,434 1,584 EV/ EBITDA (x) Other liabilities 21,099 22,443 23,728 25,196 26,941 ROE (%) Assumption Metrics Quarterly financial summary Revenue Growth (%) Automotive 4,059 10,136 12,692 14,350 15,730 Sales Growth Property & Infra EBITDA Growth Services 2,559 2,591 2,587 2,832 3,070 EBIT Growth EBIT PBT Growth Automotive Net Profit Growth Property & Infra Margins (%) Services EBITDA Margin Holdings EBIT Margin JVs & Associates PBT Margin Automotive Net Profit Margin Property & Infra Net Debt/Equity (%) Services Page 3 of 5 28 October 2013

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As of 28 October 2013, Hong Leong Investment Bank Berhad has proprietary interest in the following securities covered in this report: (a) As of 28 October 2013, the analyst, Daniel Wong, who prepared this report, has interest in the following securities covered in this report: (a) -. Published & Printed by Hong Leong Investment Bank Berhad (10209-W) Level 23, Menara HLA No. 3, Jalan Kia Peng Kuala Lumpur Tel / Fax Equity rating definitions BUY Positive recommendation of stock under coverage. Expected absolute return of more than +10% over 12-months, with low risk of sustained downside. TRADING BUY Positive recommendation of stock not under coverage. Expected absolute return of more than +10% over 6-months. Situational or arbitrage trading opportunity. HOLD Neutral recommendation of stock under coverage. Expected absolute return between -10% and +10% over 12-months, with low risk of sustained downside. TRADING SELL Negative recommendation of stock not under coverage. Expected absolute return of less than -10% over 6-months. Situational or arbitrage trading opportunity. SELL Negative recommendation of stock under coverage. High risk of negative absolute return of more than -10% over 12-months. NOT RATED No research coverage, and report is intended purely for informational purposes. Industry rating definitions OVERWEIGHT The sector, based on weighted market capitalization, is expected to have absolute return of more than +5% over 12-months. NEUTRAL The sector, based on weighted market capitalization, is expected to have absolute return between 5% and +5% over 12-months. UNDERWEIGHT The sector, based on weighted market capitalization, is expected to have absolute return of less than 5% over 12-months. Page 4 of 5 28 October 2013

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