DRBHicom's recovery begins

Background

DRBHicom is a conglomerate with core businesses in automotive; property & construction; and, concession & financial services. It is controlled by Syed Mokhtar.

Recent Financial Results

DRBHicom has reported “positive results over the last three quarters of the current financial year. This momentum is expected to be maintained in the fourth quarter and thus the Board (of DRBHicom) is confident that the full year’s results for the current financial year ending 31 March 2007 will be positive as compared to a loss in the previous financial year.” (as per the results announcement for QE31/12/2006). See Table 1 below for DRBHicom's last 8 quarterly results.

Table 1: DRBHicom's past 8 quarterly results

DRBHicom's results has been affected by its automotive division, which is involved in the manufacturing, assembly, distribution and sales of motorcycles, passenger cars, utility vehicles and commercial vehicles. Amongst the global names which DRBHicom has formed business arrangement with are Audi, Honda, Mitsubishi, General Motors, Isuzu, Mahindra, Kawasaki, Suzuki and Tata. Nevertheless, its biggest money-earner in the past i.e. EON has been performing very poorly in the past few quarters and this has dragged down DRBHicom. See Table 2 for DRBHicom's 9 months' results ending 31/12/2006.

Table 2: DRBHicom's segmental results for 9-month ended 31/12/2006

Valuation

Assuming that DRBHicom can repeat its performance of the past 2 quarters, it is expected to earn about 13.6 sen per annum. Based on its closing price as at February 23 of RM2.24 & the aforesaid EPS of 13.6 sen, DRBHicom is now trading at a PE of 16.5 times. At this multiple, I believe DRBHicom is fairly valued.

Technical Outlook

As highlighted in this post on February 6, DRBHicom appears to have broken above its medium-term downtrend line at the RM2.00 level. The share's next 2 resistance levels are RM2.50 & RM3.00


Chart: DRBHicom's daily chart as at February 23

Conclusion

Based on bullish technical outlook & improving fundamental picture, DRBHicom is a good buy for the medium-term. I expect steady newsflow (read: rumors) on this stock to boost its share price in the immediate term.