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) 2168 1077 KLCI 1818 Expected share price return 27.6% Expected dividend return 1.8% Expected total return 29.5% Share price (RM) 3.0 2.8 2.6 2.4 2.2 DRB (LHS) KLCI (RHS) Oct-12 Dec-12 Mar-13 May-13 Jul-13 Sep-13 (KLCI) 1850 1800 1750 1700 1650 1600 1550 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 -4.3-8.2-0.4 Relative -6.0-8.7-8.4 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 1,037 646 856 1,125 Rpt. net profit 575 414 548 720 Norm. net profit 312 414 548 720 Norm. EPS (sen) 16.1 21.4 28.3 37.2 P/E (x) 15.3 11.5 8.7 6.6 Book Value (RM) 3.7 3.8 4.1 4.4 P/B (x) 0.7 0.6 0.6 0.6 Net Dvd Yield (%) 2.1 1.7 2.3 2.6 Net Gearing (%) 45.0 56.6 57.8 54.7 ROE (%) 4.6 5.7 7.2 8.8 ROA (%) 0.8 1.0 1.2 1.5 HLIB Page 1 of 5 28 October 2013
Figure #1: Valuation of KLB F Y12 1H13 Item (RM m ) (R M m ) T otal Assets 344.2 327.7 G oodw ill 10.9 10.9 C ash 31.6 18.1 T otal Liabilities 148.6 126.8 Loans 57.5 59.7 Equity 195.6 200.8 R etained Profits -114.9-109.7 Bo o k Valu e 195.6 200.8 BV/Sh are (sen ) 77.5 79.6 P/B 2.00 1.95 NT A 184.7 189.9 NT A /Sh are (sen ) 73.2 75.3 P/NT A 2.12 2.06 Revenue 268.6 157.1 Logistic s Servic e 130.9 91.2 H aulage & Value Add Servic es 137.7 65.9 EBIT DA 32.7 17.4 Reported PAT 16.6 5.2 Adjusted PAT 2.2 4.2 EPS (sen ) 0.9 1.7 P/E (x) 181.6 46.5* EV/EBIT DA (x) 12.8 12.4* KLB * An n u alized Figure #2: DRB-Hicom SOP Valuation Division Stakes (%) Value (RMm) RM/Share Basis Autos Various 3,569.6 1.85 FY14 PE 10x Puspakom 100 287.7 0.15 DCF with WACC of 10.0% KLAS 100 436.1 0.23 DCF with WACC of 10.0% Alam Flora 76.3 282.3 0.15 DCF with WACC of 10.0% HICOM Power 100 575.0 0.30 Disposal Price Bank Muamalat 70 1,566.5 0.81 FY13 PB 1.4x Scott & English 70 44.5 0.02 FY14 PE 8x Uni.Asia Life 51 295.6 0.15 FY13 PB 1.5x Uni.Asia General 34.7 194.8 0.10 FY13 PB 1.5x POS 32.2 625.0 0.32 FY14 PE 12x Property Various 2,021.3 1.05 FY13 PB 1.0x 9,898.4 5.12 FY13 Net Debts (Holdings) (2,308.6) (1.19) Estimated as at end FY2013 SOP (RMm) 7,589.8 3.93 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
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 -101-242 -274-296 -304 EBITDA 657 1,427 1,424 1,667 1,951 Working cap changes 992-2,087-1,542-61 150 Depreciation -217-771 -765-798 -826 Taxation -91-195 -129-171 -225 EBIT 440 656 658 869 1,125 Others -1,325 1,582 0 0 0 Interest income 52 95 85 67 62 Operating cashflow 132 484-522 1,139 1,572 Interest expense -153-338 -359-364 -366 Capex & acquisitions -2,615-1,085-1,000-1,000-1,000 JVs & Associates 168 163 262 283 304 Free cashflow -2,484-601 -1,522 139 572 Exceptionals 1,334 377 0 0 0 Other inv cashflow -2,070 177-206 -334-350 Pretax profit 1,821 1,037 646 856 1,125 Net borrowings 2,888 1,154 110 51 48 Taxation (Inc Def Tax) -148-338 -129-171 -225 Share issuance 0 0 0 0 0 Minorities -382-124 -103-137 -180 Dividends paid -115-77 -117-146 -160 Net profit 1,292 575 414 548 720 Other fin cashflow -263-309 0 0 0 Core Profit (Ex Def Tax) -25 312 414 548 720 Net cashflow -2,044 346-1,734-289 109 No of shares (m) 1,933 1,933 1,933 1,933 1,933 Forex translation 0-3 0 0 0 Rep. EPS (sen) 66.8 29.8 21.4 28.3 37.2 Beginning cashflow 7,737 5,693 6,035 4,301 4,011 Core EPS (sen) -1.3 16.1 21.4 28.3 37.2 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) 66.8 29.8 21.4 28.3 37.2 Other long-term assets 18,883 19,914 21,973 23,559 25,283 Core basic EPS (sen) -1.3 16.1 21.4 28.3 37.2 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) -192.7 15.3 11.5 8.7 6.6 Receivables 3,195 4,306 5,159 5,762 6,276 FD PER (x) - - - - - Payables -673-715 -786-863 -946 Net DPS (sen) 4.5 5.5 4.5 6.0 6.8 Inventory 1,519 1,990 2,492 2,818 3,089 Net DY (%) 1.7 2.1 1.7 2.3 2.6 Net cash -2,327-3,193-4,201-4,543-4,625 BV/ share (RM) 3.4 3.7 3.8 4.1 4.4 Cash 3,040 3,284 2,386 2,095 2,061 PB (x) 0.8 0.7 0.7 0.6 0.6 ST debt -1,892-2,809-2,809-2,809-2,809 FCF/ share (sen) -128.5-31.1-78.7 7.2 29.6 LT debt -3,476-3,668-3,778-3,829-3,877 FCF yield (%) NA NA NA 2.9 12.0 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) 10.8 5.6 6.3 5.6 4.8 Other liabilities 21,099 22,443 23,728 25,196 26,941 ROE (%) -0.4 4.6 5.7 7.2 8.8 Assumption Metrics Quarterly financial summary Revenue Growth (%) Automotive 4,059 10,136 12,692 14,350 15,730 Sales Growth 1.1 91.0 19.8 11.7 8.9 Property & Infra 260 407 458 396 344 EBITDA Growth 10.0 117.2-0.2 17.1 17.0 Services 2,559 2,591 2,587 2,832 3,070 EBIT Growth 1.3 48.9 0.4 32.1 29.4 EBIT PBT Growth -18.7 13.6 12.2 32.5 31.4 Automotive 139 246 185 348 567 Net Profit Growth -106.2-1363.2 32.7 32.5 31.4 Property & Infra -15 38 42 35 28 Margins (%) Services 318 351 411 467 510 EBITDA Margin 9.5 10.9 9.0 9.5 10.2 Holdings 23 18 20 20 20 EBIT Margin 6.4 5.0 4.2 4.9 5.9 JVs & Associates PBT Margin 7.4 4.4 4.1 4.9 5.9 Automotive 125 106 200 220 240 Net Profit Margin -0.4 2.4 2.6 3.1 3.8 Property & Infra 15 8 10 10 10 Net Debt/Equity (%) 35.5 45.0 56.6 57.8 54.7 Services 28 49 52 53 54 Page 3 of 5 28 October 2013
Disclaimer The information contained in this report is based on data obtained from sources believed to be reliable. However, the data and/or sources have not been independently verified and as such, no representation, express or implied, is made as to the accuracy, adequacy, completeness or reliability of the info or opinions in the report. Accordingly, neither Hong Leong Investment Bank Berhad nor any of its related companies and associates nor person connected to it accept any liability whatsoever for any direct, indirect or consequential losses (including loss of profits) or damages that may arise from the use or reliance on the info or opinions in this publication. Any information, opinions or recommendations contained herein are subject to change at any time without prior notice. Hong Leong Investment Bank Berhad has no obligation to update its opinion or the information in this report. 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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 50450 Kuala Lumpur Tel 603 2168 1168 / 603 2710 1168 Fax 603 2161 3880 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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