3 days ago
DRB-Hicom shares rise after Spirit Aerosystems Malaysia acquisition plan
KUALA LUMPUR: DRB-Hicom Bhd 's shares edged higher following its proposal to acquire the entire equity interest in Spirit Aerosystems Malaysia Sdn Bhd (Spirit MY).
The conglomerate rose 1.84%, or 1.5 sen, to 83 sen at 10.21 am, though it remains down about 25% year-to-date.
On Monday, DRB-Hicom said its wholly owned subsidiary, Composites Technology Research Malaysia Sdn Bhd (CTRM), had entered into a conditional share purchase agreement to acquire Spirit MY for a sum to be determined based on an enterprise value of US$95.2mil.
Hong Leong Investment Bank Research (HLIB Research) is positive on the acquisition, noting that Spirit MY's stable earnings are expected to complement CTRM's operations and enhance DRB-Hicom's overall financial performance.
'The indicative price-to-earnings (P/E) valuation stands at 7.0x, aligning closely with DRB's projected P/E of 7.4x for FY26 and 5.4x for FY27.
'The deal is expected to yield a negative goodwill gain of RM223.2mil, while CTRM will eliminate RM12.7mil in profits related to unsold inventory,' HLIB Research said.
'We anticipate an additional earnings contribution of around RM45mil per year - equivalent to approximately 21.5% of FY25 earnings and 15.4% of FY26 earnings,' it added.
While HLIB Research maintains a positive view on the acquisition, it is keeping its 'hold' recommendation with an unchanged target price of RM0.85, based on a 25% discount to its sum-of-the-parts valuation of RM1.11.
'We remain cautious on DRB's main business segment - automotive, given stiff market competition, while PosM and Deftech remain as drags to the group, partially offset by the steady contributors like Bank Muamalat and CTRM,' it said.
Kenanga Research described the acquisition as 'mildly positive,' noting that it should be price-to-earnings (P/E) accretive, with Spirit MY valued at 14 times compared with DRB-Hicom's 16 times.
The research house cautioned that there is currently a greater risk as Spirit MY no longer operates under the Spirit Group and, therefore, lacks cost-plus protection.
'We keep our earnings forecasts, target price of RM0.68 and underperform call, pending shareholders and regulators' approval,' it added.
