Like it or not, DRB-HICOM is not auto stock anymore

Today, its stock seems unaffected despite scrapping a partnership to sell Chevrolet cars
Today, its stock seems unaffected despite scrapping a partnership to sell Chevrolet cars, a well-known auto brand. Yesterday, DRB-HICOM shares rose for the fourth consecutive day, ending up 1 per cent to RM1.02. The stock has gained more than 40 per cent so far this year.

While some may see this as a sign of investor confidence and the minimal impact of the Chevrolet business to DRB-HICOM's earnings, it also reflects how the group has transformed itself.

In 2004, the group's auto business contributed some RM320 million in pre-tax earnings, making up more than 60 per cent of the total. It is no longer the group's main money-spinner. Now, it is the growing Islamic banking business under Bank Muamalat and a 25-year concession to service and maintain the Tanjung Bin power plant in Johor.

Based on unaudited numbers, the group's concession and banking divisions are contributing almost all of the company's earnings for the first half of fiscal 2010. Combined, they contributed some RM180 million in pre-tax earnings. In contrast, its auto business contributed less than RM60 million in pre-tax earnings.

This is definitely good news for investors, as DRB-HICOM now has become more diversified, or in other words, it has more ways to grow its earnings and is less reliant on a single source of income. With bigger businesses taking over the spotlight, it is clear that DRB-HICOM is not an auto stock anymore. The question now is how important is the automotive business for the DRB-HICOM group today? To borrow a football term, has it been "placed on the bench"?



This may be answered, or at least some hints will be given over the next 12 months. DRB-HICOM said it wants to design and build its own brand of hybrid vehicles in three to five years and is currently in talks with potential partners to make it happen. It expects talks to be concluded and firmed up by end of next year. Wrapping this up would indicate that DRB-HICOM is serious in building its own car and in becoming a bigger industry player.

http://www.btimes.com.my/Current_News/BTIMES/articles/drb1230a-2/Article/