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Friday, September 23, 2016

CIMB Research maintains Add for DRB-Hicom, target price RM1.69

Friday, 23 September 2016 | MYT 8:14 AM
CIMB Research maintains Add for DRB-Hicom, target price RM1.69

KUALA LUMPUR: CIMB Equities Research retains its Add call on DRB-Hicom Bhd with an unchanged target price of RM1.69 with sale of its 90% stake in Singapore-based property investment firm Corwin Holding Pte Ltd as it continues to unlock the value of its assets.

The research house said on Friday it had already as imputed the disposal of The Verge -- an eight -level shopping mall building in Singapore -- into its valuation.

“A key catalyst is the potential emergence of a foreign partner for Proton while a key risk is higher losses at Proton,” it said.

On Thursday, DRB-Hicom announced its unit, Hicom Megah had signed a share sale agreement with Columba Holdings Pte Ltd (CHPL) to sell its entire 90% equity interest in Corwin S$189.75mil (RM576.8mil) cash, of which S$170.78mil (RM519.1mil) is attributable to DRB. The net book value of the leasehold property is S$140mil (RM425.5mil) as at March 31, 2016.

“We believe that the pricing of the property is fair, given the market value is S$150mil (RM455.9mil). Net sale proceeds will be S$167.8mil (RM510.1mil), after deducting S$2.9mil (RM8.95mil) disposal expenses.

“Management expects the proceeds will be utilised for working capital. Hence, we are not expecting any special dividend from the disposal. DRB’s total investment in Corwin from 1997 to 2016 is RM224.94mil.

“DRB is expected to recognise a RM348.21mil disposal gain (or 18 sen/share), which will boost our FY17 earnings. However, we have not imputed this one-off gain pending the completion of the deal,” CIMB Research said.

The research house said it was positive on this exercise as DRB will be able to pare down its borrowings and unlock the value of its investment in Corwin based on the current market value of the property.

“We commend DRB’s efforts to improve its cash flow and balance sheet, and also unlock the value of its non-core assets. Following the disposal, DRB’s gearing ratio will be reduced to 0.75 times (from 0.81 times). The deal is expected to be completed in 3QFY17,” it said.

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