We maintain our BUY call on DRB-Hicom but raise our fair value to RM1.80/share (from RM1.50/share previously). This is based on a P/B ratio of 0.53x (from 0.44x previously), still below

STOCK FOCUS OF THE DAY

DRB-Hicom : 3 potential suitors named                  BUY

We maintain our BUY call on DRB-Hicom but raise our fair value to RM1.80/share (from RM1.50/share previously). This is based on a P/B ratio of 0.53x (from 0.44x previously), still below its 10-year historical mean and five-year mean of 0.6x. The stock has appreciated 80% in the past four months (it closed at 80 sen in end-May). Reuters reported on Friday that French carmaker PSA Group (Peugeot and Citroen, among others), Renault and Japan's Suzuki Motor Corp were among those that had received a request for proposal (RFP) from Proton, in a quest by the latter to find a strategic foreign partner. It was not indicated how the companies would respond to the RFPs. Recall from our Aug 16 report that the key objectives Proton has for the partnership are:- (1) a significant boost in production volume with part of this to come from exports, Proton is currently utilising only 35% of total capacity; (2) to immediately close the technology gap between Proton and its rivals; and (3) to share development costs.

The news flow on this has indicated that DRB-Hicom is working on what looks to be a disciplined timeline. Proton will rely on the recent Persona and the new Saga (to launch this Wednesday) to edge sales closer to its target of 100K for the full year, from a dismal 44K for the Jan-Aug period. We are positive on the following factors for DRB-Hicom:-

(1) The search for a strategic foreign partner is part of the bigger plan that includes the right-sizing of Proton's workforce to stem losses in the carmaker; (2) steady earnings from the RM7.55bil AV8 contract for which contributions are expected to peak FY17-FY19; (3) the ongoing move to dispose of non-core assets to provide some relief to its balance sheet (net gearing last stood at 0.8x end-June); and (4) the disposal of KLAS as part of its restructuring involving POS Malaysia, which is poised to be a complete player in the logistics supply chain. Following the completion of this exercise in the current quarter, DRB-Hicom's stake in POS Malaysia would increase to 53.49% from 32.2%.

Others :

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Top Golve : Eyeing expansion in Thai       HOLD

Plantation Sector : Newsflow for week of 19-23 September         NEUTRAL

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