DRB-Hi­com’s di­vest­ment plan a pos­i­tive move, say an­a­lysts

New Straits Times - - News - HONG LEONG IN­VEST­MENT BANK

KUALA LUMPUR: An­a­lysts are pos­i­tive on the an­nounce­ment on DRB-Hi­com par­tially di­vest­ing Pro­ton and fully di­vest­ing Lo­tus, which are loss mak­ing and cap­i­tal in­ten­sive.

Hong Leong In­vest­ment Bank (HLIB) Re­search in its note yes­ter­day said in the fi­nan­cial year 2016 and 2017, Pro­ton made a loss of RM1.5 bil­lion and RM1 bil­lion re­spec­tively, while Lo­tus recorded a loss of RM267 mil­lion and RM68 mil­lion, re­spec­tively.

HLIB said im­me­di­ate ben­e­fits to DRB-Hi­com in­clude re­tain­ing part of Pro­ton’s valu­able non-core as­sets in­clud­ing the Shah Alam land and 40 per cent stake in Pro­ton City, as well as cash pro­ceeds of £100 mil­lion (RM560 mil­lion) from the Lo­tus dis­posal.

Be­sides that, it said Pro­ton would be able to lever­age Geely for turnaround, which will par­tially re­lieve the bur­den on DRB-Hi­com, while DRB-Hi­com could re­fo­cus its re­sources on other strate­gic busi­nesses.

It said Pro­ton’s im­me­di­ate work­ing cap­i­tal would be fi­nanced by RM170 mil­lion pro­ceeds from Geely, re­main­ing RM250 mil­lion Redeemable Con­vert­ible Pref­er­ence Shares (RCCPS) from the gov­ern­ment and RM1.1 bil­lion grant for re­search and de­vel­op­ment from the gov­ern­ment.

HLIB has main­tained its “buy” call on DRB-Hi­com with a higher tar­get price of RM2.58 from RM2.22, pre­vi­ously.

“With the emer­gence of Geely as a strate­gic for­eign share­holder for Pro­ton, we can ex­pect rerat­ing cat­a­lyst on DRBHi­com’s val­u­a­tion,” it said.

Be­sides that, Pub­lic In­vest­ment Bank Re­search in its note yes­ter­day said it viewed the deal as nec­es­sary and sen­si­ble.

It said fol­low­ing the agree­ment, Pro­ton’s turnaround plans will be ac­cel­er­ated, while a ma­jor over­hang on DRB-Hi­com’s val­u­a­tion was po­ten­tially re­moved.

“Our neu­tral call is re­tained.

“How­ever, the re­moval of this large over­hang should con­tinue to en­cour­age fer­vent trad­ing in­ter­est in the stock in the near term,” it said.

It has re­tained it “neu­tral” call on DRBHi­com, lift­ing its tar­get price to RM1.82 from RM1.31. DRB-Hi­com closed four sen higher yes­ter­day at RM1.72.

With the emer­gence of Geely as strate­gic for­eign share­holder for Pro­ton, we can ex­pect re-rat­ing cat­a­lyst on DRBHi­com’s val­u­a­tion.

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