By NUR HAZIQAH A MALEK / Pic By MUHD AMIN NAHARUL
DRB-Hicom Bhd is expected to total its one-off gains to about RM1.58 billion, following the proposed disposal of its shares in Alam Flora Sdn Bhd and 10 other properties, as well as stakes in two subsidiaries.
Public Investment Bank Bhd analyst Nur Farah Syifaa’ Mohamad Fu’ad said with the company’s focus on the automotive and industrial property development, the disposals are expected to lead the way for the company’s share price to outperform.
“Seeing that the group’s key focus is on these two sectors, the disposals are viewed as a good move among investors,” she told The Malaysian Reserve.
According to Public Investment Bank’s research report titled “Proposed disposal of Alam Flora” dated Aug 2, DRB-Hicom’s ‘Outperform’ status is unchanged with a 12-month target price of RM2.40.
The disposal of its waste collection business is viewed positively as it helps to realise the underlying value of non-core assets within the group.
“Valuation-wise, we view the disposal price of 9.7x price/earnings ratio (PER) based on Alam Flora’s financial reports for financial year 2018 (FY18) as attractive as it is above our valuation of 8x PER.
“As at FY18, the waste management company accounted for about 6% of the total group’s revenue and 19% profit after tax,” it said.
The proposed disposal is expected to be completed by the first quarter of 2019, following the approval of the relevant parties.
DRB-Hicom plans to use the proceeds to repay its Islamic medium-term notes, as well as borrowings. It also plans to invest in existing businesses and future investment opportunities, as well as finance the development cost for Proton Holdings Bhd’s new models.
The group’s total debt stands at RM5.79 billion, according to its annual report for FY18.
Its share price ended 3% lower at RM2.26 yesterday, from its previous close of RM2.33.
Meanwhile, Malakoff Corp Bhd was rated as a ‘Trading Sell’, following its proposed acquisition of Alam Flora.
Farah said Alam Flora will add about RM28 million per annum to its bottom line, however, it will be subjected to a 24% corporate tax and the company will not be able to receive the tax incentive upon the acquisition.
“Although the acquisition is earnings accretive, we feel it is expensive and Malakoff could still embark on its renewable-energy initiatives without having to own Alam Flora’s entire waste assets,” she said.
Malakoff also closed lower yesterday by 0.52% to 96 sen.