3 days ago
DRB-Hicom's latest buy a win
HLIB) Research said it is positive on the acquisition, as Spirit Malaysia's stable earnings are expected to strengthen DRB-Hicom's overall financial performance.
PETALING JAYA: Analysts are cautiously optimistic on DRB-Hicom Bhd 's plans to acquire Spirit AeroSystems Malaysia Sdn Bhd, which is a key customer in the aerospace business.
Hong Leong Investment Bank (HLIB) Research said it is positive on the acquisition, as Spirit Malaysia's stable earnings are expected to complement Composites Technology Research Malaysia Sdn Bhd's (CTRM) operations and strengthen DRB-Hicom's overall financial performance. CTRM is a wholly-owned subsidiary of DRB-Hicom.
'The indicative price-to-earnings (PE) valuation stands at seven times, aligning closely with DRB-Hicom's projected PE of 7.4 times for financial year 2026 (FY26) and 5.4 times 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.
'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,' the research house added.
In an announcement to Bursa Malaysia on Monday, the conglomerate said it is paying US$109.8mil or RM491.3mil cash to take over Spirit Malaysia to strengthen its presence in the booming aerospace business, especially with the recent commitment by Malaysia and Indonesia in securing a new Boeing aircraft.
The proposed acquisition is expected to be completed by the fourth quarter of 2025 (4Q25), pending shareholders and European and US regulators' approval.
'While we are positive on the acquisition exercise, we maintain our 'hold' recommendation with an unchanged target price of RM0.85,' it said.
Meanwhile, Kenanga Research said it is maintaining its 'underperform' call on DRB-Hicom.
Among others, it said: 'Our main concern is on the fluctuation of earnings post-takeover as Spirit Malaysia will be detached from the Spirit Group, thus losing fixed-margin arrangement (pre-takeover, it is under a cost-plus arrangement as any cost incurred is charged back with a fixed mark-up to the respective Spirit AeroSystems' entities).
'Post-takeover, Spirit Malaysia will be entering into supply agreements directly with Airbus and Boeing with no cost-plus arrangement,' the brokerage noted.
DRB-Hicom reported an 81% decline in net profit in 1Q25 ended March 31, 2025 to RM17.7mil from RM91.5mil in the previous corresponding period.
The decline was attributed to reduced revenue across major segments, coupled with higher depreciation and amortisation expenses.
Meanwhile, revenue in 1Q25 slipped to RM4.11bil from RM4.33bil a year earlier.
