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Collaboration with Catarc, MARii seen positive, adding value to DRB-Hicom

DRB-Hicom Bhd (Jan 8, RM2.31) Upgrade to outperform with an unchanged target price (TP) of RM2.80: DRB-Hicom Bhd announced that Perusahaan Otomobil Nasional Sdn Bhd (Perodua), its indirect 50.1%-owned subsidiary, had entered into a memorandum of understanding (MoU) with China Automotive Technology and Research Center Co Ltd (Catarc) to collaborate in the field of automotive testing, research and development (R&D) and to maximise resources of China’s and Malaysia’s automotive industry. Separately, DRB-Hicom has also signed an MoU with the Malaysia Automotive, Robotics and IoT Institute (MARii) for collaboration on the development of academic programmes, courses and on-the-job training, establishment of an autonomous, automated and connected vehicle (AACV) test bed in Cyberjaya and a full-fledged National Automotive Testing Centre in Tanjung Malim. This MoU shall be effective on the date of the MoU and valid for a period of one year and 24 months respectively. We make no changes to our forecast, but upgrade our call on DRB-Hicom to “outperform”, given an upside of 18% to our unchanged TP of RM2.80.

Catarc is a China state-owned enterprise and a science and technology corporate group with extensive influence in the automotive industry in China and abroad. MARii is an agency under the ministry of international trade and industry and serves as the focal point, coordination centre and think tank for Malaysia’s automotive industry.

This cooperation will add value to the group as it will become a strategic platform to explore potential business synergy between Perodua and Catarc, among others, strategic cooperation for next-generation vehicles (NGV) to set up the right-hand drive vehicle and the tropical-weather Asean R&D centre in the future, and to establish potentials for revenue generation for both entities. This also provides opportunity for DRB-Hicom and MARii to explore the further development of Malaysia’s automotive industry, the AACV test bed and National Automotive Testing Centre.

With no material details provided, we understand this is for the development of the country’s automotive industry by making Malaysia the NGV hub in the region. It has been reported that under the National Automotive Policy 2019, expected to be revealed this year, Malaysia will come out with a full definition of NGV by 2022. We are positive on this collaboration as it could add value to the group, providing the strategic platform to explore the future development of Malaysia’s automotive industry, perhaps translating into tangible gains in the long run. — PublicInvest Research, Jan 8

Source: TheEdgeMarkets