PP13693/03/2013(032114)

Initiating Coverage 30 July 2012 DRB-Hicom Bhd Buy AUTOMOTIVE Bloomberg Ticker: DRB MK | Bursa Code: 1619 12-month upside potential Unlocking synergies Target price 3.45 Current price (as at 27 Jul) 2.58 Capital upside (%) 34 We initiate coverage on DRB-Hicom Bhd (DRBH), recommending a Buy with target Net dividends (%) 2 price of RM3.45. We see strong growth potential in its automotive division mainly Total return (%) 36 from its collaboration with and the inclusion of under its large stable of companies. Although contribution from the services and property, asset and construction (PAC) segments are relatively smaller, these businesses will provide the Group with stable recurring income. Key stock statistics Market cap (RM m) 4,988 Issued shares (m) 1,933 DRB-Hicom Bhd Free float (%) 37  DRB-HICOM Bhd (DRBH) was incorporated as the Heavy Industries Corporation of Berhad (HICOM) in 1980. It merged with Diversified Resources Berhad Share price performance (DRB) in 1996, to form the largest conglomerate in Malaysia. In 2006, the Group 52-week range (RM) 1.67 – 3.17 was acquired by Etika Strategi Sdn Bhd and became one of the three flagships of the 3-mth avg volume (‘000) 4,540 AlBukhary Group of Companies. 3-mth avg turnover (RM m) 12  DRBH is principally involved in three main segments: (i) automotive, (ii) services, and (iii) property, asset and construction (PAC). 1M 3M 6M Absolute (%) 1.2 1.2 -6.5 Investment merits Relative (%) -0.3 -2.2 -12.9  DRBH’s automotive division is the largest revenue generator. The Group distributes , Honda, Mahindra, Mitsubishi, Proton, and vehicles as well as Isuzu trucks and pick-ups, HICOM Perkasa light-duty trucks and motorbikes. Share price chart  We see strong growth potential in the auto division from its tie-up with Volkswagen RM % (VW). VW aims to expand its market share in Malaysia and ASEAN. The Group can 3.2 60 bank on VW’s plans to establish itself as an assembly hub for VW in ASEAN. 2.8 40  Also with Proton under its stable, DRBH is now the country’s single largest 2.4 20 2.0 0 automotive group, enabling it to rival the strong alliance between Perusahaan 1.6 -20 Otomobil Kedua Sdn Bhd () and Toyota Malaysia.

We view Proton’s acquisition as a win-win situation for DRBH and Proton as the Jul-11

 Oct-11 Apr-12 Jun-12 Jan-12 Aug-11 Sep-11 Nov-11 Dec-11 Feb-12 Mar-12 May-12 former will be able to leverage on Proton’s strong sales volume and extra Share price (lhs) Relative perf (rhs) manufacturing capacity from the underutilized Tanjung Malim plant. On the other Source: Bloomberg hand, Proton will gain from DRBH’s partnerships with renowned automakers.

 The services segment is the Group’s second largest division which has a diverse

collection of businesses which include concession-based operations, financial Major shareholders % services and trading. These businesses provide stable recurring income for the Etika Strategi 55.9 Group, driven mainly by banking (Bank Muamalat Malaysia) and postal services (Pos EPF 8.1 Malaysia).

 The Group is also expected to start work on its new township of Glenmarie Heights

in Iskandar Malaysia (IM), Johor, in 3Q-4Q2012. Located within the Economic Zone E Senai-Skudai of IM, the development comprises various township components, and has a total area of 1,516 acres with a GDV of RM8bn over 10 years. Analyst Azida Nor-Azizi Key risks [email protected]  Weak economy +603 2089 2989  Declining consumer sentiment  Unfavorable forex trends Valuation  We initiate coverage on DRB-Hicom with a Buy recommendation.  Our target price of RM3.45 is based on the sum-of-parts valuation method.  We have assumed a dividend payout of 20%.

SNAPSHOT OF FINANCIAL AND VALUATION METRICS

Figure 1 : Key financial data

FYE 31 Mar FY11A FY12A FY13F FY14F FY15F

Revenue (RM m) 6,804.1 6,878.2 15,522.7 17,783.4 18,505.2 EBITDA (RM m) 586.3 661.9 1,447.3 1,705.0 1,780.6 EBIT (RM m) 440.9 482.8 872.8 1,034.0 1,075.4 Pretax profit (RM) 701.5 1,521.1 659.6 715.5 750.8 Reported net profit (RM m) 472.5 1,293.0 457.6 493.5 511.5 Adj net profit (RM m) 401.3 321.5 457.6 493.5 511.5 EPS (sen) 24.4 66.9 23.7 25.5 26.5 Adj EPS (sen) 20.8 16.6 23.7 25.5 26.5 ECM / Consensus (%) 94.3 77.9 67.5 EPS growth (%) 0.0 173.7 -64.6 7.8 3.6 Adj EPS growth (%) -15.0 -32.0 42.4 7.8 3.6 P/E (x) 10.6 3.9 10.9 10.1 9.8 Adj P/E (x) 12.4 15.5 10.9 10.1 9.8 EV/EBITDA (x) 7.9 8.4 3.8 3.3 3.1 ROE (%) 9.9 23.2 7.2 7.3 7.2 Net DPS (sen) 6.0 6.0 4.7 5.1 5.3 Dividend yield (%) 2.3 2.3 1.8 2.0 2.1 BVPS (RM) 2.58 3.19 3.38 3.58 3.79 P/BV (x) 1.0 0.8 0.8 0.7 0.7

Source: ECM Libra

Figure 2 : Forward P/E trend Figure 3 : Forward P/B trend

P/E (x) P/E Average P/E P/BV Average P/BV P/BV (x) 12 1.00 0.90 10 0.80 8 0.70 0.60 . 6 0.50 0.40 4 0.30 0.20 2 0.10 0 0.00

2007 2008 2009 2010 2011 2012 2007 2008 2009 2010 2011 2012

Source: ECM Libra, Bloomberg Source: ECM Libra, Bloomberg

Figure 4 : Sector comparison

Target Share Net Dividend price price Mkt Cap EPS Growth (%) P/E (x) P/BV (x) ROE (%) Yield (%) Company Call (RM) (RM) (RM m) CY12 CY13 CY12 CY13 CY12 CY13 CY12 CY13 CY12 CY13

DRB-Hicom Buy 3.45 2.58 4,988 24.1 14.4 11.8 10.3 0.8 0.7 11.2 7.3 2.0 1.9 UMW Holdings Hold 9.70 9.50 11,099 54.2 8.9 14.3 13.1 2.4 2.2 17.4 17.4 3.5 3.8 Tan Chong Motors Hold 4.16 4.43 2,977 -5.8 14.3 14.2 12.4 1.5 1.3 10.6 11.2 1.7 1.9

Average 24.1 12.5 13.4 12.0 1.5 1.4 13.1 12.0 2.4 2.6

Source: ECM Libra, Bloomberg Share price date: 27 Jul 2012

DRB-Hicom Bhd | Unlocking synergies | 30 July 2012 2

COMPANY BACKGROUND DRB-HICOM Berhad (DRBH) was incorporated as the Heavy Industries Corporation of Malaysia DRBH was a result of the merger Berhad (HICOM) in 1980. HICOM was listed on the Main Board of the Kuala Lumpur Stock between Diversified Resources Exchange in 1992. It merged with Diversified Resources Berhad (DRB) in 1996, to form the largest Berhad (DRB) and Heavy conglomerate in Malaysia. In 2006, the Group was acquired by Etika Strategi Sdn Bhd and Industries Corporation of became one of the three flagships of the AlBukhary Group of Companies. Malaysia (HICOM).

BUSINESS ACTIVITIES

DRBH is principally involved in three main segments: (i) automotive, (ii) services, and (iii) Automotive sector is the largest property, asset and construction (PAC). In FY12, the automotive segment generated 59% of total contributor to DRBH’s revenue. revenue while services and PAC segments contributed 37% and 4%, respectively. However the main contributor at the operating profit level was the services segment (70%), while automotive only contributed 29% due to low margins.

Figure 5 : FY12 revenue breakdown Figure 6 : FY12 operating profit breakdown

Property, asset & Property, asset & construction construction 4% 1% Automotive 29% Services 37% Automotive 59%

Services 70%

Source: Company, ECM Libra Source: Company, ECM Libra

AUTOMOTIVE

DRBH is an exclusive distributor of Audi, Honda, Mahindra, Mitsubishi, Proton, and Suzuki, as Exclusive distributor of Audi, well as Isuzu trucks and pick-ups, HICOM Perkasa light-duty trucks and MODENAS motorbikes. It Honda, Mahindra, Mitsubishi, is also into manufacturing, assembly, distribution and sales of military vehicles and special Proton, and Suzuki, as well as purpose vehicles including sales of related spares and services. In 2010, the Group recorded its Isuzu trucks and pick-ups, HICOM highest vehicle sales of 74,443 units (+24% y-o-y; passenger: 75%; commercial: 25%), Perkasa light-duty trucks and representing 12% of the country’s total industry volume of 605,156 units. Honda, its best-selling MODENAS motorbikes. marque, contributed 60% of sales. DRBH’s total vehicle sales dropped 15% y-o-y in 2011 due to the natural disasters that hit Japan and Thailand, which led to Honda shutting down its operations in both countries. Tie up with VW enables the DRBH also assembles Volkswagen (VW) vehicles in Malaysia through its collaboration with the Group to bank on VW’s plans in German automaker. VW aims to expand its market share in ASEAN and plans to position itself to increasing market share in compete with the Japanese makes, i.e. Toyota, Honda and Nissan. We view that the Group can ASEAN. bank on VW’s plans to establish itself as an assembly hub for VW in ASEAN.

Meanwhile, the Group’s latest acquisition of national carmaker Proton Holdings has been completed. We view the acquisition as a win-win situation for both DRBH and Proton. With The Proton acquisition is a win- Proton under its stable, DRBH is now the country’s single largest automotive group, with multiple win situation for both DRBH and brand representation, enabling it to rival the strong alliance between Perusahaan Otomobil Proton. Kedua Sdn Bhd (Perodua) and Toyota Malaysia. DRBH will be able to leverage on Proton’s strong sales volume and utilize the extra auto manufacturing capacity from the underutilized Tanjung Malim plant. On the other hand, Proton will gain from DRBH’s partnerships with renowned automakers.

DRB-Hicom Bhd | Unlocking synergies | 30 July 2012 3

Figure 7 : DRB-Hicom’s vehicle sales trend 2005-2011

Passenger Commercial TIV share

'000 units %

60 15

50 12

40 9

30

6 20

3 10

0 2005 2006 2007 2008 2009 2010 2011

Note: Does not include Proton cars & MODENAS motorbikes Source: MAA

Figure 8 : Sales breakdown according to marques (passenger cars) Figure 9 : Sales breakdown according to marques (commercial)

Mitsubishi Audi Hicom Perkasa 2.1 7.9 8.4 Isuzu 48.6 Suzuki 16.4 Mitsubishi 43.4

Honda 73.0

Source: MAA Source: MAA

Volkswagen (VW) On 21 Dec 2010, DRBH entered into a collaboration and license agreement with Volkswagen AG and Volkswagen Group Malaysia Sdn Bhd to collaborate in the assembly of VW vehicles in Currently assembling three VW Malaysia. Under the agreement, DRBH will assemble three models i.e. Passat , Jetta and Polo models in Pekan Pahang. sedan , in its plant in Pekan, Pahang. The Pekan plant has an annual capacity of 96,000 vehicles, of which more than half is unutilized. The plant assembles for brands like Mercedes, Suzuki and Isuzu is running at a capacity of about 17,000 units pa—18% of its full capacity.

VW is looking to grow its presence in the Malaysian passenger car market as well as in ASEAN. It Collaboration with DRBH allows plans to increase its market share from currently 2% (1H2012) to 10%. The collaboration with VW access to the former’s DRBH enables VW to leverage on DRBH’s distribution channels. It is said that the company also extensive distribution channels. plans to have a joint-venture with DRBH for sales operations. This year VW will focus on its CKD and completely-built-up (CBU) models for Malaysia. At present, the company’s CBU segment is stifled by the lack of approved permits (AP), but together with DRBH, VW plans to acquire more APs to bring in more CBU units. VW will introduce 12 new models including Passat , Jetta and Polo sedan this year, compared to 15 models last year.

DRB-Hicom Bhd | Unlocking synergies | 30 July 2012 4

The Volkswagen Group operates 94 production plants in 18 European countries and a further eight countries in the Americas, Asia and Africa. Production in Asia is concentrated in China (7 plants) and India (3 plants).

Proton Holdings On 16 Mar 2012, Proton Holdings Berhad became a 50.4% subsidiary of the Group after the latter acquired Proton’s 42.7% stake at RM5.50/share, and having bought a 7.7% stake from the market. DRBH has also undertaken a mandatory general offer (MGO) for the remaining of Proton shares at the same price. The MGO has been completed and Proton shares were fully acquired by DRBH by end-June 2012. DRBH’s interest in Proton is seen as a defensive move as 60% of its revenue in its automotive division comes from Proton—Edaran Otomobil Nasional Berhad (EON) sells cars for Proton, and several subsidiaries are Tier-1 vendors of auto parts to Proton.

Going forward, management is looking to increase local sales by introducing new models (e.g. Perdana replacement) through the sharing of platform with its key auto partners to improve cost Future plans for Proton include efficiency. In the near-term, DRBH is planning to streamline and consolidate the operations of growing local sales with new Proton Edar (Proton’s marketing and distribution arm) and EON. The action plan includes models and to consolidate the reducing Proton Edar’s and EON’s outlets. Currently, there are c.250 outlets in total, of which 100 operations of Proton Edar and is owned by Proton Edar and 32 by EON. We expect the exercise to be beneficial in the long term EON. as a result of greater operational efficiency and the provision of more integrated services to customers.

Deftech On 23 Feb 2011, the Government awarded DRB-HICOM Defence Technologies Sdn Bhd (DEFTECH), the Group’s wholly-owned subsidiary, a RM7.55bn contract to design, manufacture and deliver 257 units of 12 variants of 8x8 Armoured Wheeled Vehicles. The seven-year project started in 2011.

MODENAS

Syarikat Motosikal dan Enjin Nasional Sdn. Bhd (National Motorcycle and Engine Company), or known as Modenas is a national motorcycle company producing various small motorcycle models below 200cc targeted for local market and export. The company's headquarters and factory are located at the small town of Gurun, Kedah. The company’s technology partner is Kawasaki Heavy Industries. Apart from DRBH, shareholders include Kawasaki, Sojitz, and Khazanah Nasional.

SERVICES

The services segment is the Group’s second largest division which has a diverse collection of The services segment consists of businesses which include concession-based operations such as solid waste management, vehicle a diverse collection of businesses inspection, airport services and power plant operations and maintenance, as well as financial that provides the Group with services and trading companies. These businesses provide stable recurring income for the Group, recurring income. driven mainly by banking (Bank Muamalat Malaysia) and postal services (Pos Malaysia).

Bank Muamalat Malaysia Berhad (BMMB) Bank Muamalat Malaysia Berhad (BMMB) is the second full-fledged Islamic bank to be established in Malaysia after Bank Islam Malaysia Berhad. On 10 Oct 2007, Bukhary Capital Sdn Bhd made an offer to DRBH to sell its entire 70% stake in BMMB for RM1.1bn to be satisfied entirely by the issuance of 548.7 million new DRBH's shares at RM1.95 per share.

For FY2012 (FYE Mar) BMMB registered a pretax (and zakat) profit of RM124.1m, lower by 39% y-o-y, despite recording a moderate growth of 6% in total distributable income. The decline was partly due to higher income attributable to depositors by RM64m, as a result of increase in total customer deposits by 12%. The bank maintained its core business well with expanded financing base from RM7.1bn in FY11 to RM9.0bn in FY12.Total assets of the Group grew by 12% y-o-y in FY12 to RM20.5bn mainly on the increase in investment securities held and financing of customers.

DRB-Hicom Bhd | Unlocking synergies | 30 July 2012 5

BMMB will continue its focus on fee income generation particularly in the areas of trade finance, treasury activities, investment banking and transactional banking as well as its wealth management, Bancatakaful services and Ar-Rahnu business.

Pos Malaysia (POSM)

DRBH completed its acquisition of a 32.21% stake in POSM from Khazanah Nasional Berhad in Leverage on POSM extensive July 2011. The Group plans to leverage on POSM’s extensive network to promote its wide range network. of products and services especially its insurance, logistic and banking businesses. POSM has 700 outlets, scattered across not only in the state capitals and major towns, but also in small towns and rural areas. POSM is trying to reduce its dependency on the core mail business, which made up 62% of its 15- Implementation of a 5-year plan month (ended 31 Mar 2012) revenue of RM1.48bn. It has implemented an aggressive 5-year plan to achieve double digit growth that aimed to achieve double digit growth in revenue every year till 2017, significantly improve p.a in revenue. its current pretax margins of 12%, and explore new mergers and acquisitions opportunities.

In June 2012, POSM formed a strategic partnership with BMMB to offer Islamic pawn broking business (Ar-Rahnu) at selected POSM outlets. The Ar-Rahnu services shall be carried out and managed by a 80:20 (POSM: BMMB) JV company known as Pos Ar-Rahnu Sdn Bhd under the Partners BMMB to offer Ar- brand name of ArRahnu@POS . The offering of ArRahnu@POS would enhance the product Rahnu services. offering at POSM outlets, besides providing an alternative to distribute micro credit convenience to the general public and small time entrepreneurs who may have difficulty in obtaining financing from banks. Ar-Rahnu is considered a source of short-term funds where gold or jewelry is offered as collateral for debt. Under this system, the creditor and borrower agree to a specific loan tenure, and if the latter fails to pay back his due after the stipulated time, the pawned asset is sold off to settle the debt, with any surplus returned to the owner.

Puspakom PUSPAKOM Sdn Bhd (PUSPAKOM) is the country’s only comprehensive national vehicle inspection company. The concession awarded to the company for the exclusive rights and authority to carry out motor vehicle inspection and testing activities has been extended for another 15 years. This followed a new agreement concluded with the Government on 25 Feb 2011 that will extend the concession until 31 Aug 2024. Future plans include setting up two new branches to carry out inspection services, while eight others will be relocated for operational efficiencies. It has set up seven new hire purchase inspection branches throughout the peninsula and installed additional lanes in five existing branches in order to support this.

Alam Flora Alam Flora is one of the leading solid waste management companies in Southeast Asia, serving 30% of the Malaysian population. Alam Flora manages the central and east zones comprising the Federal Territory of Kuala Lumpur, Putrajaya, and Pahang, and is set to expand its services to Terengganu and Kelantan by the end of 2012. The company will invest in research and development as well as collaborate with local universities to develop the systems and technologies required by these entities.

KL Airport Services (KLAS) KL Airport Services Sdn Bhd (KLAS) is among the Group’s star performers. It provides services such as ground handling, cargo handling, in-flight catering and aircraft maintenance and engineering services. For FY11, KLAS registered a pretax profit of RM21.4m, or 64% above its budget, which was attributed to increase in ground handling and engineering activities, resulting from new customers and increased frequencies from existing ones. KLAS also benefited from an increase in cargo tonnage and terminal charges and substantial growth in the customs freight agent business.

DRB-Hicom Bhd | Unlocking synergies | 30 July 2012 6

PROPERTY, ASSET AND CONSTRUCTION (PAC) The Group through its PAC segment is engaged in the construction of integrated townships, industrial parks and the development of retail, commercial and residential properties. The Property and Infrastructure segment’s operations include Glenmarie Cove Development Sdn Bhd, HICOM Properties Sdn Bhd, Horsedale Development Berhad, Imatex Sdn Bhd and Rebak Island Marina Berhad.

Property In FY12, the Group launched property developments with total gross developments value (GDV) of RM500m. These include the subsequent phase of Glenmarie Garden Bungalows, Laman Glenmarie residential units, semi-detached houses and commercial developments in Proton City and bungalows in Glenmarie Cove. DRBH is also planning for mixed development projects at Glenmarie Wahyu, office and serviced apartments at Jalan Tun Razak, condominiums at Glenmarie Puchong. The Group is also expected to start work on its new township of Glenmarie Heights in Iskandar Malaysia (IM), Johor, in 3Q-4Q2012. Located within the Economic Zone E Senai-Skudai of IM, the development comprises various township components, and has a total area of 1,516 acres with a gross development value of RM8bn over 10 years. According to management, the development will be segmented into five phases, each phase will be between 300 to 500 acres. The Group plans to develop the first 200 acres as the introduction phase, and will start from the southwestern tip of the land. Although this project (and other launches) would bring significant earnings to the Group, we did not factor them in our estimates due to lack of information.

Figure 10 : Property portfolio

Residential Commercial Industrial Integrated township Hospitality Glenmarie Court Jaya Urban Centre, HICOM-Glenmarie Proton City, Perak Taj Rebak Island Resort, Industrial Park, Selangor Langkawi Glenmarie Residences HICOM Office Park, Pekan Industrial Park, Kota Kemuning & Kota Lake Kenyir Resort & Spa, Selangor Pahang Permai Golf & Country Terengganu Club, Selangor Glenmarie Gardens HICOM Town Centre, HICOM Industrial Park, HICOM Pegoh Industrial Holiday Inn Glenmarie Selangor Selangor Park, Melaka Kuala Lumpur (under construction) Glenhill Saujana Shah Accentra Glenmarie, MODENAS Industrial Glenmarie Golf & Alam Selangor Complex, Gurun Country Club Glenmarie Cove Klang The Verge, Selangor Mak Mandin Industrial Park, Seberang Prai Taman Sri Puchong, Bandar Indera Mahkota, Selangor Kuantan Taman Bukit Saga, Selangor Section 26, Shah Alam Glenview Apartments, Cheras Mutiara Tropicana, Selangor Glenpark, Selangor

Source: Company website

DRB-Hicom Bhd | Unlocking synergies | 30 July 2012 7

RISKS Weak economy The automotive market correlates to the condition of the economy. Slowdown in the economy, rising oil prices and tightening of consumers’ purchasing power would negatively affect auto sales.

Declining consumer sentiments Buying decisions could be affected by stricter hire purchase policies imposed by the banks. However, according to the Malaysian Automotive Association, car companies have adjusted to the new guidelines and longer loan processing time.

Unfavorable forex trends

DRBH is largely exposed to currency risk (i.e. USD and JPY) as it imports auto parts, CKD kits and

CBUs. The weakening of the Ringgit against the US dollar and Japanese Yen may adversely compress margins.

FINANCIALS We project FY13 revenue to grow more than twofold to RM15.5bn from RM6.9bn in FY12 mainly due to the inclusion of Proton Holdings. Meanwhile, revenue growth in the service segment is driven by BMMB and concession-based businesses.

Figure 11 : Financial highlights for FY13-15F

FY13F FY14F FY15F Assumptions

Revenue (RMm) 15,522.7 17,783.4 18,505.2 EBITDA (RMm) 1,447.3 1,705.0 1,780.6 We assume revenue growth in EPS (sen) 23.7 25.5 26.5 the auto segment mainly DPS (sen) 4.7 5.1 5.3 20% dividend payout contributed by Proton sales, while growth in services is driven Revenue growth 126% 15% 4% by Bank Muamalat and concessions. EBITDA growth 119% 18% 4%

Adj net profit growth 42% 8% 4%

Revenue breakdown

Automotive 12,626 14,634 15,080 Mainly contributed by Proton sales. Services 2,611 2,834 3,078 Mainly contributed by BMMB and concession businesses. PAC 286 315 347

Source: ECM Libra

DRB-Hicom Bhd | Unlocking synergies | 30 July 2012 8

VALUATION We value DRBH using the sum-of-parts method. We applied average 12x FY13 PE to its automotive division, while its concession-based businesses (Puspakom, Alam Flora and KL Airport Initiate coverage on DRB-Hicom Services) are valued based on the discounted cash flow (DCF) method. BMMB and POSM are with a BUY recommendation valued based on 1.4x FY12 P/BV and market value, respectively, and its property assets are based with sum-of-parts-based target on its book value. These valuations led us to arrive at SOP/share (target price) of RM3.45, price of RM3.45. presenting a potential upside of 34% and a total returns of 36%. Hence, we recommend a BUY on

DRBH.

Figure 12 : Sum of parts valuation

Divisions Stake Method Value (RMm) Automotive 100% 12x FY13 PE 4,772.4 Puspakom 100% DCF 389.3

Alam Flora 61% DCF 287.9 KL Airport Services 100% DCF 353.1 Bank Muamalat (BMMB) 70% 1.4x FY12 PBV 1,401.3 Pos Malaysia (POSM) 32% Market price 498.2

Property Land in Tebrau, Johor 100% BV 728.5 Parcels of land in Klang, Selangor 100% BV 122.9 Retail complex - The Verge, Singapore 83% BV 272.3 Menara Uni.Asia 100% BV 58.2 Menara Bumiputera 100% BV 90.5 Factory & land in Gurun, Kedah 100% BV 161.0 Factory & land in Pekan, Pahang 100% BV 128.7 Glenmarie Golf & Country Resort 100% BV 192.3 Rebak Island Resort, Langkawi 60% BV 47.1 Proton City, Tg Malim, Perak 60% BV 398.7 Hicom Pegoh Industrial Park, Melaka 100% BV 412.8

Subtotal 10,315.3 Less: Net debt 3,617.2 Total 6,698.1 No. of shares 1,933.2 SOP/share 3.45

Source: ECM Libra

DRB-Hicom Bhd | Unlocking synergies | 30 July 2012 9

APPENDICES

Appendix 1 : Management team

Name Current appointment Experience Dato’ Syed Mohamed bin Syed Murtaza Chairman/Senior Independent Dato’ Syed Mohamad is the Managing Director of Non-Executive Director Amstrong Auto Parts Sdn Bhd He also heads Penang Tourists Centre Bhd, MITTAS Bhd, Motorcycle, Scooter Assembly & Distributor Association of Malaysia and the Usains Group of Companies. He is President of both the Federation of Asian Motorcycle Industries and the International Motorcycle Manufacturers Association. His current directorships in companies within the DRB-HICOM Group include HICOM Holdings Bhd, HICOM Bhd and several private limited companies. Dato’ Sri Haji Mohd Khamil bin Jamil Group Managing Director His current directorships in companies within the DRB- HICOM Group include Edaran Otomobil Nasional Bhd, HICOM Holdings Bhd, HICOM Bhd, Horsedale Development Bhd, Bank Muamalat Malaysia Bhd, Uni.Asia General Insurance Bhd, Uni.Asia Life Assurance Bhd, Pos Malaysia Bhd and several private limited companies. Dato’ Sri Haji Mohd Khamil is a Director of Etika Strategi Sdn Bhd, the holding company of DRB-HICOM Bhd in which he has a 10% shareholding. Dato’ Noorrizan bt Shafie Non-Independent Non- Dato’ Noorrizan is currently the Under Secretary, Executive Director Remuneration Policy, Public Money and Management Service Division, Treasury, Ministry of Finance. She started her career in the Civil Service in 1981 and has served in various positions with the Economic Planning Unit in the Prime Minister’s Department, Public Services Department and Ministry of Finance. Dato’ Noorrizan is a Non- Independent Director nominated by the Ministry of Finance. She also sits on the Board of HICOM Holdings Bhd. Dato’ Ibrahim bin Taib Non-Independent Non- Dato’ Ibrahim sits on the Board of Bandar Eco-Setia Sdn. Executive Director Bhd, Iskandar Investment Bhd and KWASA Properties Sdn Bhd Dato’ Ibrahim is a Non-Independent Director nominated by the Company’s substantial shareholder, the Employees Provident Fund. Datuk Haji Abdul Rahman bin Mohd Ramli Independent Non-Executive His current directorships in companies within the DRB- Director HICOM Group include being the Chairman of Horsedale Development Bhd, Puspakom Sdn Bhd and Director of several private limited companies. He also sits on the Board of Kuala Lumpur-Kepong Bhd. He was appointed as an Independent Member of Investment Committee of Felda Global Ventures Holdings Sdn Bhd on 5 Aug 2010. Ong Ie Chong Independent Non-Executive Mr Ong was the Executive Chairman of PPB Group Bhd, Director Managing Director of Central Sugars Refinery Sdn Bhd and a Board member of PPB Oil Palms Bhd and Tradewinds (M) Bhd prior to joining the DRB-HICOM Board. His current directorships in the companies within the DRB-HICOM Group include HICOM Holdings Bhd, HICOM Bhd and several private limited companies. Tan Sri Marzuki bin Mohd Noor Independent Non-Executive His current directorships include being the Chairman of Director Edaran Otomobil Nasional Bhd and Director of Horsedale Development Bhd, HICOM Holdings Bhd and several private limited companies. Ooi Teik Huat Independent Non-Executive Mr Ooi is presently a Director of Meridian Solutions Sdn Director Bhd and sits on the boards of Tradewinds Plantation Bhd, Tradewinds (M) Bhd, MMC Corporation Bhd, Zelan Bhd, Johor Port Bhd and several private limited companies.

Source: Company

DRB-Hicom Bhd | Unlocking synergies | 30 July 2012 10

Appendix 2 : Types of businesses

AUTOMOTIVE Honda Malaysia Sdn Bhd ------Authorised Honda distributor

Operates through five wholly owned subsidiaries: Euromobil, EON Auto Mart, Edaran Otomobil Nasional Berhad (EON) ------Automotive Conversion Engineering (ACE), EON Properties and EONMobil.

Euromobil Sdn Bhd ------Distributor of Audi

Mitsubishi Motors Malaysia Sdn Bhd ------Exclusive distributor of Mitsubishi

Sole distributor of light-duty trucks marketed under the name of HICOM Perkasa. Automotive Corporation Sdn Bhd ------Also the franchise holder and distributor of Isuzu medium-heavy duty trucks.

Suzuki Malaysia Automobile Sdn Bhd ------Imports, markets and locally assembles Suzuki automobiles.

Sole distributor of Mahindra, Wald and Ssangyong vehicles as well as the exclusive USF-HICOM (Malaysia) Sdn Bhd ------distributor of Can-Am Spyder Roadsters in Malaysia.

Isuzu Malaysia Sdn Bhd ------Imports, assembles and distributes Isuzu motor vehicles.

Motosikal Dan Enjin Nasional Sdn Bhd Producer of various small motorcycle models below 200 cc targeted for local market ------(MODENAS) and export.

Logistics and PDI facilitator for import and export activities, representing seven DRB-HICOM Auto Solutions Sdn Bhd (DHAS) ------major marques within the Group.

Is a prime defence contractor that plays an integral role in providing the DRB-HICOM Defence Technologies Sdn Bhd development, manufacturing and supply of armoured and logistic vehicles for ------(DEFTECH) military and homeland security. In commercial sector, DEFTECH is also a preferred supplier for specialised vehicles and commercial buses.

Manufacturing & Engineering PHN Industry Sdn Bhd ------Tier 1 stamping vendor specialising in metal-based automotive components.

HICOM-Teck See Manufacturing Malaysia ------Largest plastic automotive vendor in the country. Sdn Bhd (HTS)

Supplies high and low-pressure diecasting automotive components to Malaysian OEM HICOM Diecastings Sdn Bhd ------(original equipment manufacturers) car manufacturers and to major motorcycle engine assemblers.

Oriental Summit Industries Sdn Bhd (OSI) ------Chassis component manufacturer

HICOM Automotive Manufacturers Assembles the Mercedes-Benz C, E and S class series, Fuso, Actros and bus chassis as ------(Malaysia) Sdn Bhd (HAMM) well as the Suzuki Swift for the respective franchise holders.

Core business includes of automotive manufacturing and assembling of commercial vehicles. Manufactures light-duty trucks under the brand HICOM PERKASA. Under ISUZU HICOM Malaysia Sdn Bhd (IHM) ------contract assembly segment, the current lines of model are ISUZU D-Max pick-up and Heavy-Duty ISUZU truck.

HICOM-HONDA Manufacturing Sdn Bhd ------(HICOM-HONDA) Manufacturer of HONDA motorcycle engines and components in Malaysia since 1985.

HICOM-YAMAHA Manufacturing ------Manufacture and assembly of motorcycle engines and parts. Malaysia Sdn Bhd (HICOM-YAMAHA)

DRB-Hicom Bhd | Unlocking synergies | 30 July 2012 11

SERVICES SECTOR Concessionaires Holds the concession to provide operation and maintenance (O&M) services for the HICOM Power Sdn Bhd (HPSB) ------Tanjung Bin power plant.

The country’s only comprehensive national vehicle inspection company. Appointed by PUSPAKOM Sdn Bhd (PUSPAKOM) ------the Ministry of Domestic Trade, Cooperatives and Consumerism as the authority to inspect vehicles under the Hire Purchase Act 1967 (2010).

Ground handling and engineering activities, customes freight agent business, cargo KL Airport Services Sdn Bhd (KLAS) ------logistic management, institutional catering, halal logistics and ground handling management.

Other businesses The second full-fledged Islamic bank to be established in Malaysia after Bank Islam Bank Muamalat Malaysia Berhad ------Malaysia Berhad.

Uni.Asia Life Assurance Berhad (UAL) ------Life insurance provider

Uni.Asia General Insurance Berhad (UAG) ------General insurance provider

HICOM University College Sdn Bhd Owns the International College of Automotive (ICAM) which was set up to ------(HUCSB) complement the growth of the .

Premier engineering and trading group, and has been a leader in the sales of heavy Scott & English (M) Sdn Bhd ------commercial marine engines as well as on-board and industrial generator sets.

Midea Scott & English Electronics Sdn ------Associate company dealing in home appliances Bhd

PROPERTY, ASSET & CONSTRUCTION SECTOR Property Final phase in the development in Kota Kemuning. The balance of land available for HICOM-Gamuda Development Sdn Bhd ------development is about 12 acres and this has been re-planned to optimise land use efficiency and value.

JV between DRB-HICOM and Perusahaan Otomobil Nasional Berhad (PROTON). Proton City Development Corporation ------Proton City is a township with industrial, commercial and residential development Sdn Bhd (PCDC) spread for 4,000 acres.

Asset & Facility Management Set amid lush tropical greenery, the resort-style Holiday Inn Kuala Lumpur Glenmarie Holiday Inn Kuala Lumpur Glenmarie ------is a tranquil retreat 35km from the bustle of central Kuala Lumpur and 3km from Shah Alam.

Glenmarie Asset Management Sdn Bhd Provides integrated facilities management services which includes security, cleaning ------(GAM) and landscaping, renovation works, administration and telecommunication services.

Construction Develops, acquires, constructs, owns and manages apartments, mixed-use properties, HICOM Builders Sdn Bhd (HBSB) ------and land for residential development.

Comtrac Sdn Bhd ------Turnkey contractor

Source: Company

DRB-Hicom Bhd | Unlocking synergies | 30 July 2012 12

DETAILED FINANCIAL DATA

DRB-Hicom Bhd FINANCIAL SUMMARY Price Date: 27 July 2012

Balance Sheet Income Statement FYE 31 Mar (RM m) 2011A 2012A 2013F 2014F 2015F FYE 31 Mar (RM m) 2011A 2012A 2013F 2014F 2015F

PPE 1,841 4,509 5,935 6,264 6,559 Revenue 6,804 6,878 15,523 17,783 18,505 Inventories 524 1,517 3,103 2,174 3,315 EBITDA 586 662 1,447 1,705 1,781 Receivables 1,331 3,173 6,991 4,653 7,463 Depre. & amort. -145 -179 -574 -671 -705 Other assets 23,251 27,582 27,582 27,582 27,582 Net interest inc/ (exp) -40 -101 -417 -534 -544 Cash & bank balance 1,350 3,040 3,040 3,040 3,040 Other income 0 0 0 0 0 Total assets 28,296 39,821 46,651 43,713 47,959 Associates/JV profits 229 168 204 215 220 Extraordinary items 71 972 0 0 0 LT borrowings 825 3,476 3,476 3,476 3,476 Pretax profit 702 1,521 660 715 751 ST borrowings 521 1,892 6,847 4,576 7,091 Taxation -131 -148 -114 -125 -133 Payables 610 5,961 8,918 8,078 9,601 Minority interest -98 -80 -88 -97 -107 Other liabilities 20,207 21,199 19,750 19,530 19,328 Net profit 472 1,293 458 494 511 Liabilities 22,164 32,528 38,991 35,659 39,496 Adj net profit 401 321 458 494 511

Shareholders' equity 4,980 6,162 6,528 6,923 7,332 Minority interest 1,152 1,132 1,132 1,132 1,132 Segmental revenue Total equity 1,691 1,849 2,040 2,257 2,490 FYE 31 Mar (RM m) 2011A 2012A 2013F 2014F 2015F

Total equity & liabilities 28,296 39,821 46,651 43,713 47,959 Auto 12,626 14,634 15,080 Services 2,611 2,834 3,078 Property, asset & const. 286 315 347

Cash Flow Statement Key Statistics & Ratios FYE 31 Mar (RM m) 2011A 2012A 2013F 2014F 2015F FYE 31 Mar (RM m) 2011A 2012A 2013F 2014F 2015F

Pretax profit 702 702 1,521 660 715 Growth Change in working capital 1,136 1,136 992 -2,447 2,427 Revenue 8% 1% 126% 15% 4% Tax paid -131 -131 -148 -114 -125 EBITDA -16% 13% 119% 18% 4% Others -84 -84 11 370 456 Adj net profit -15% -20% 42% 8% 4% Operating cash flow 1,622 1,622 2,376 -1,531 3,473 Adj EPS -15% -32% 42% 8% 4%

Capex -139 -256 -2,000 -1,000 -1,000 Profitability Others -589 -3,599 -1,290 - - EBITDA margin 9% 10% 9% 10% 10% Investing cash flow -729 -3,855 -3,290 -1,000 -1,000 Net profit margin 7% 19% 3% 3% 3% Effective tax rate 28% 11% 25% 25% 25% Issuance of shares - - - - - Return on assets 2% 4% 1% 1% 1% Dividend paid -65 -87 -92 -99 -102 Return on equity 10% 23% 7% 7% 7% Others - - - - - Financing cash flow -65 -87 -92 -99 -102 Leverage Total debt / assets (x) 0.0 0.1 0.2 0.2 0.2 Total debt / equity (x) 0.3 0.9 1.6 1.2 1.4 Net debt / equity (x) -0.1 37.8 111.6 72.4 102.6

Valuation FYE 31 Mar (RM m) 2011A 2012A 2013F 2014F 2015F

EPS (sen) 24.4 66.9 23.7 25.5 26.5 Adj EPS (sen) 20.8 16.6 23.7 25.5 26.5 P/E (x) 10.6 3.9 10.9 10.1 9.8 Adj P/E (x) 12.4 15.5 10.9 10.1 9.8 EV/EBITDA (x) 7.8 8.3 3.8 3.2 3.1

Net DPS (sen) 6.0 6.0 4.7 5.1 5.3 Net dividend yield 2.3 2.3 1.8 2.0 2.1

BV per share (RM) 2.58 3.19 3.38 3.58 3.79 P/BV (x) 1.0 0.8 0.8 0.7 0.7

DRB-Hicom Bhd | Unlocking synergies | 30 July 2012 13

DISCLOSURE & DISCLAIMER

Stock rating definitions

Strong buy - High conviction buy with expected 12-month total return (including dividends) of 30% or more Buy - Expected 12-month total return of 15% or more Hold - Expected 12-month total return between -15% and 15% Sell - Expected 12-month total return of -15% or less Trading buy - Expected 6-month total return of 15% or more arising from positive newsflow. However, upside may not be sustainable.

Sector rating definitions

Overweight - Industry expected to outperform the market over the next 12 months Neutral - Industry expected to perform in-line with the market over the next 12 months Underweight - Industry expected to underperform the market over the next 12 months

Disclaimer

This report is for information purposes only and general in nature. The information contained in this report is based on data and obtained from sources believed to be reliable. However, the data and/or sources have not been independently verified and as such, no representation, express or implied, is made with respect to the accuracy, completeness or reliability of the information or opinions in this report. Accordingly, neither we nor any of our related companies and associates nor persons related to us accept any liability whatsoever for any direct, indirect or consequential losses (including loss of profits) or damages that may arise from the use of or reliance on the information or opinions in this publication. Any information, opinions or recommendations contained herein are subject to change at any time without prior notice.

It is not possible to have regard to the specific investment objectives, the financial situation and the particular needs of each person who may receive or read this report. As such, investors should seek financial, legal and other advice regarding the appropriateness of investing in any securities or the investment strategies discussed or recommended in this report.

Under no circumstances should this report be considered as an offer to sell or a solicitation of an offer to buy any securities referred to herein. This company and its related companies, their associates, directors, connected parties and/or employees may, from time to time, own, have positions or be materially interested in any securities mentioned herein or any securities related thereto, and may further deal with such securities and provide advisory, investment or other services for any company or entity mentioned in this report. In reviewing this report, investors should be aware that any or all of the foregoing, among other things, may give rise to real or potential conflict of interests.

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ECM Libra Capital Sdn Bhd (579116-A) 2nd Floor, West Wing, Bangunan ECM Libra No. 8 Jalan Damansara Endah Damansara Heights 50490 Kuala Lumpur Tel: (603) 2089 1888 Fax: (603) 2096 1868

DRB-Hicom Bhd | Unlocking synergies | 30 July 2012 14