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.