DRB-Hicom’s RM240m land acquisition to have minimal impact on earnings – CGS-CIMB


DRB-HICOM Bhd’s RM240 million land acquisition proposal in Melaka from Tradewinds Plantation Bhd (TWPB) is expected to have a minimal impact on the group’s earnings, while expanding its industrial land bank asset portfolio, says CGS-CIMB.

CGS-CIMB said the proposed acquisition is in line with the group’s strategic direction to focus on the development and sale of industrial properties, following its decision to exit the non-industrial property asset and hospitality portfolio in 2018.

“The group plans to begin development of the lands in 2022.

“It also plans to obtain potential recurring income by entering into an agreement with TWPB to rent the land to the latter as the parcels are currently part of a larger oil palm plantation TWPB manages,” CGS-CIMB said in a note today.

Last Friday, DRB-Hicom, in a bourse filing, said its indirect wholly-owned unit, Hicom Glen Sdn Bhd, had proposed to buy 116.44 hectares land in Alor Gajah, Melaka from TWPB for RM240 million for the purpose of industrial park development.

The company said the proposed acquisition is expected to be completed by the first quarter of 2021, and the purchase would be 65 per cent funded by external borrowings while the balance was to be funded via internally generated funds.

Meanwhile, CGS-CIMB expected DRB-Hicom to deliver sequentially stronger net profit in the third quarter ended Sept 30, 2020 (Q3 2020), driven by higher sales volume at Proton and an increase in parcels processed volume at Pos Malaysia Bhd, underpinned by robust e-commerce demand.

“We see higher-than-expected volume growth at Proton and faster-than-expected earnings turnaround at Pos Malaysia as potential re-rating catalysts for the stock,” it said.

However, it noted that the widening Pos Malaysia losses, lower volume delivery at Proton and supply chain disruption from the COVID-19 outbreak are downside risks for the group.

Overall, DRB-Hicom reiterated its “add” call on DRB-Hicom with an unchanged target price of RM2.35.