DRB-Hicom seen to gain RM427.47m from The Verge deal

Corwin owns a leasehold property, which is an eight-level shopping mall building known as The Verge. We view the disposal price as fair although it was above what we ascribed in our sum-of-parts (SOP) valuation due to the stronger Singapore dollar. 

We are positive on the deal as it will help to unlock the value of non-core assets within the group. Based on our estimate, this disposal will increase our TP by 3% to RM1.60. We maintain our “outperform” call on DRB-Hicom with an unchanged SOP-based TP of RM1.55.

The proceeds from the disposal are expected to be used to pay expenses for the transaction of S$21.4 million, Corwin’s borrowings of S$85.52 million and the balance will be utilised for working capital requirements of the group within 12 months from the completion date. 

Hicom Megah’s total investment in Corwin from 1997 until 2015 is approximately RM224.94 million. Management estimated that the gain arising from the proposed disposal is approximately RM427.47 million.

The proposed disposal is expected to be completed by the first quarter of 2016.

The Verge has a total net lettable area of approximately 130,250 sq ft. We believe the disposal is positive in this current challenging economy, as it helps to realise the underlying value of non-core assets within DRB-Hicom, as well as to improve the group’s cash flow and strengthen its balance sheet. 

We see the main concern over DRB-Hicom currently is the performance of Proton Holdings Bhd. Nevertheless, we still believe in DRB-Hicom’s embedded value and potential of the group’s other automotive operations, e.g. Defence Technologies Sdn Bhd and CTRM Aero Composites Sdn Bhd, stable concession businesses (e.g. Alam Flora Sdn Bhd,KL Airport Services Sdn Bhd and Puspakom Sdn Bhd) and substantial properties/land bank.

This article first appeared in The Edge Financial Daily, Dec 23, 2015. Tap here to subscribe for your personal copy.