AmWatch - DRB-Hicom : Inks deal with Saab for Gripen aircraft-related works BUY, 14 Jan 2015

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DRB-Hicom  : Inks deal with Saab for Gripen aircraft-related works           BUY

We maintain BUY on DRB-Hicom with an unchanged fair value of RM3.60/share – a 15% discount to our SOP value of RM4.25/share. Defence and security company, Saab, has signed a new industrial co-operation agreement with DRB-Hicom’s subsidiary Defence Technologies Sdn Bhd (Deftech) in relation to the Gripen fighter aircraft.

Bernama yesterday reported Saab Malaysia head, Thomas Linden, as saying that the deal covered Gripen-related maintenance and support activities, design and manufacturing of advanced composite systems and associated technology transfer. DRB-Hicom has greatly enhanced its capabilities in the latter, via the acquisition of Composites Technology Research Malaysia Sdn Bhd (CTRM), which produces aircraft composite components, while its subsidiaries manufacture such components for aerospace and non-aerospace applications.

Linden said besides supporting the government's defence programmes, the new agreement would also create business opportunities for both Saab and Deftech in Malaysian and the surrounding countries. The two companies had in 2011 signed an industrial co-operation teaming agreement to collaborate on an airborne early warning and control system. The co-operation was further expanded in March 2013 with a memorandum of understanding covering various technology areas.

Saab has long supplied defence equipment to the Malaysian Armed Forces. These include naval and land radars, airborne self-protection systems for helicopters and fighter aircraft, naval command and control systems and army support weapons, including anti-tank weapons. While this is positive for Deftech and the group as a whole, we do not foresee any immediate impact from this deal. While Proton is undergoing a tough phase, DRB-Hicom’s automotive segment currently depends greatly on Deftech’s defence projects, particularly in the RM7.5bil AV8 contract. We maintain our numbers for now.

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