DRBhicom oh DRBhicom

Sure boh worth RM 3??

DRB-Hicom - Proton Venture In Indonesia

According to various news sources, DRB-Hicom's 100% subsidiary, Proton Holdings, has signed a memorandum of understanding (MoU) with PT Adiperkasa Citra Lestari to develop and manufacture Indonesian national car. A feasibility study will be conducted and was expected to be completed within six months. Although the MoU is still subject to feasibility studies, we view this collaboration between Proton and Indonesia as positive for DRB-Hicom as it gives Proton a platform and opportunity to help expansion into ASEAN and tapping into larger automotive markets. We retain our Outperform call on DRB-Hicom with a target price of RM3.00.

Tapping into huge Indonesian auto market. Indonesia's automotive sector has experienced a positive growth with total vehicles sales increased by a CAGR of 11% over the past 10 years. Growth in Indonesia automotive market will be expected to be driven by rising domestic consumption and higher levels of disposable income. According to Nielson Global Survey of Automotive Demand, Indonesia has a relatively low vehicle ownership rate, with only 46% ownership levels, while Malaysia have an ownership levels of 93%. Strong GDP growth signifies greater opportunity for more people to own a new car or used car with a 12.5% of 10 years CAGR. According to latest report from Association of Indonesia Automotive Industries (GAIKINDO), total sales in Indonesia drop by 1.8% in FY14 due to increase in fuel prices and weakness in Indonesian rupiah. Nevertheless, the market share for affordable energy saving cars has significantly increased by 236.3% compared to a year before. We believe Proton who just lauched its new compact car last year will benefit from this potential collaboration on the small car segment which may do well in the Indonesian auto market.

Maintain Outperform. We maintain our Outperform call on DRB with an unchanged target price of RM3.00 as we believe its current share price is not reflective of deep underlying assets & businesses within the DRB group. While we acknowledge the challenges faced by Proton, even in worst-case scenario where Proton's auto business is written-off, DRB's other assets and properties are still worth more than RM2.80/share (excluding net debt of RM5.0bn).

Source: PublicInvest Research - 9 Feb 2015