AmResearch maintains "buy" on DRB-Hicom on RM5.8b China JV

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KUALA LUMPUR (Apr 20): AmResearch Sdn Bhd maintained its "buy" call on DRB-Hicom Bhd shares with an unchanged fair value of RM2.88 following the group's proposed RMB10 billion (RM5.84 billion)joint venture (JV) to produce Lotus cars in China.

DRB-Hicom's (valuation: 2.6; fundamental: 1.25) wholly-owned subsidiaries Proton Holdings Bhd and Lotus Group International Ltd had last Friday signed an equity JV contract with China’s Goldstar Heavy Industrial Co Ltd.

Today, AmResearch said in a note it believed that the latest development to produce Lotus cars in China's Fujian province was positive for DRB-Hicom.

“We believe the latest development is positive for Lotus and DRB-Hicom given China’s huge market for luxury and premium auto brands. China is the world’s largest market.

“We reiterate buy on DRB-Hicom with an unchanged fair value of RM2.88 per share based on a 20% discount to our SOP (sum of parts) value of RM3.59 per share,” AmResearch said.

At 12:30pm, DRB-Hicom shares were unchanged at RM1.90 for a market capitalisation of RM3.67 billion. A total of 131,300 shares changed hands.

AmResearch noted that things appeared to be turning around for Lotus, which sold 1,448 cars eight months into the financial year ended Mar 31, 2015 (FY15). This is a 55% year-on-year increase.

“(This is) reportedly Lotus’ best sales performance since 2008. Lotus expects total sales of 2,000 units for FY15,"AmResearch said.

(Note: The Edge Research's fundamental score reflects a company’s profitability and balance sheet strength, calculated based on historical numbers. The valuation score determines if a stock is attractively valued or not, also based on historical numbers. A score of 3 suggests strong fundamentals and attractive valuations.)