This article first appeared in The Edge Malaysia Weekly on August 29, 2022 - September 4, 2022

FRESH from the privatisation of MMC Corp Bhd, Tan Sri Syed Mokhtar Al-Bukhary is said to be mulling a similar exercise for his listed automotive company DRB-Hicom Bhd.

However, it is believed that the low-profile tycoon faces some hurdles in consolidating his interests in DRB-Hicom, among which is finalising a financing package in the midst of an uncertain global equities market environment.

“Syed Mokhtar had been looking at the potential privatisation exercise since early this year, but bankers were not prepared to extend the financing. Moreover, he had recently completed the privatisation of MMC Corp in June last year,” says a source.

It is learnt that leading local banks are advising him on a possible DRB-Hicom exercise.

Syed Mokhtar owns a 55.9% stake in DRB-Hicom through Etika Strategi Sdn Bhd. The stock had been underperforming the market until recently when talk of a potential privatisation surfaced.

As with Syed Mokhtar’s other companies such as MMC Corp, DRB-Hicom’s intrinsic value is not reflected in its share price owing to what some analysts describe as “inefficient structures”.

“The crown jewel in DRB-Hicom is its 50.1% stake in Proton Holdings Bhd. The company is doing well with its latest model, which is a bestseller in the domestic market,” says the analyst.

The remaining stake in Proton is held by China’s Zhejiang Geely Holding Group Co Ltd.

DRB-Hicom also has a 70% stake in Bank Muamalat Malaysia Bhd, controls 54% of Pos Malaysia Bhd, and owns a huge tract of land ripe for commercial and industrial development.

Should there be a privatisation exercise at DRB-Hicom, it begs the question whether the takeover bid will give rise to a mandatory general offer at Pos Malaysia, whose market cap is roughly RM500 million.

According to CGS-CIMB Research, DRB-Hicom’s stake in Proton Holdings alone is worth almost RM2.3 billion, while its interest in Bank Muamalat is valued at RM1.35 billion. Overall, the research house estimates that DRB-Hicom has an asset value of RM8.30 billion.

It is a far cry from the group’s market capitalisation, which is a mere RM2.08 billion.

DRB-Hicom carries debts of RM8.04 billion and cash of RM3.10 billion. However, because it owns 70% of Bank Muamalat, it cannot be ascertained how much of the debts and liabilities are tied to DRB-Hicom itself.

CGS-CIMB estimates that DRB-Hicom has a revalued net asset per share of RM2.14, which is a discount to its share price of RM1.41.

A source points out that the privatisation of DRB-Hicom is partly due to Syed Mokhtar wanting to streamline his businesses, and to unlock the value of Bank Muamalat.

Bank Muamalat has been said to be a merger target in the past due to Bank Negara Malaysia requirements for DRB-Hicom to pare down its stake in the bank to at least 40%.

That was the condition set by the central bank when it gave the go ahead for DRB-Hicom to buy a 70% stake in the bank from Bukhary Capital Sdn Bhd — an entity also controlled by Syed Mokhtar — in a transaction valued at RM1.069 billion in November 2008.

After almost 14 years, the condition has yet to be met. Speculation had been rife over the years that DRB-Hicom was to sell a stake or merge Bank Muamalat with other banks, including Malaysia Building Society Bhd, Affin Bank Bhd and Bank Islam Malaysia Bhd. But nothing materialised.

“Presently, the market is only valuing DRB-Hicom as a holding company of Proton, but there is more going on in it,” a source says, adding that Bank Muamalat is also a crown jewel asset for the group.

He adds that the corporate exercise that Syed Mokhtar, 70, is looking at only involves DRB-Hicom and not Pos Malaysia.

Over the years, the tycoon has restructured his companies and businesses to ease cash flow and keep gearing at manageable levels. He has also brought in professionals that used to helm government-linked companies to manage his listed companies.

“Within the past two to three years, Syed Mokhtar has hired former Petronas president and CEO Tan Sri Wan Zulkiflee Wan Ariffin as DRB-Hicom chairman and former Bursa Malaysia head Tan Sri Tajuddin Atan as chairman of MMC Corp and Bank Muamalat,” the source notes.

Former Tenaga Nasional Bhd CEO Tan Sri Che Khalib Mohamad Nor is heading the now privatised MMC Corp. The port business under MMC is likely to be relisted. Other companies controlled by Syed Mokhtar include Malakoff Bhd, which is headed by Anwar Syahrin Abdul Ajib, who was formerly CEO of UEM Sunrise Bhd,  as well as Gas Malaysia Bhd, which is managed by Ahmad Hashimi Abdul Manap.

The possible privatisation of DRB-Hicom also comes in the wake of reports that Syed Mokhtar wants to float Lotus Cars Ltd’s electric vehicle (EV) division in a listing estimated at about £5 billion to £6 billion (about RM28.5 billion to RM34.2 billion).

Syed Mokhtar owns a 49% stake in Lotus through Etika Automotive Sdn Bhd while Zhejiang Geely owns 51%.

Last week, DRB-Hicom and Pos Malaysia saw a spike in trading activities. On Wednesday, DRB-Hicom’s share price shot up to RM1.62 before closing at a four-month high of RM1.46, up 13% or 17 sen.

Trading volume swelled to 16.01 million shares, the highest seen since June 2020.

There was a similar surge in interest in Pos Malaysia, which pushed its share price to 68.5 sen from 58 sen.

DRB-Hicom returned to profitability in the second quarter of June 30, 2022 (FY2022), with a net profit of RM169.6 million, from a net loss of RM217.5 million a year ago, on the back of the disposal of its former subsidiary Lotus Advance Technology Sdn Bhd and overall business improvement.

CGS-CIMB expects the challenging operating environment to continue in the second half of this year in view of rising inflation and an unfavourable forex environment.

“Although we expect the automotive segment to drive DRB-Hicom’s sales in the second half, we see the unfavourable forex movements with a weaker ringgit versus the US dollar, inflationary pressures, and rising interest rate environment weighing on margins,” it says in a report.

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