OPTIMISTIC - that's how group chairman Tan Sri Mohd Saleh Sulong feels about the DRB-Hicom Bhd group's prospects this year.
The challenges, risks and threats for our automotive unit will come in the form of an economic downturn...affecting people's purchasing power and willingness to spend.
Barring any unforeseen circumstances, we are sufficiently optimistic and confident of the economic prospects for 2003 with GDP (gross domestic product) growth expected at 5%6%. With that, the DRB-Hicom group would ride the wave and do well,'' Saleh told StarBiz in an interview.
He pointed out that people tended to perceive DRB-HICOM as a highly diversified group whereas, in reality, it was an automotive group with 80% of its turnover and profits derived from this business.
The company's focus going forward is to remain a major player in the automotive sector, be it in distribution, manufacturing or assembly. Other than being involved in passenger cars of different makes, the group is also into the distribution and manufacture of 4WDs, motorcycles, trucks and buses.
The recent tie-up with Audi and Volkswagen for the distribution of the makes locally is testimony that DRB-HICOM is expanding its presence in that sector.
In the first nine months of 2002, it garnered 55% of the 4WD market, 50% of the truck market, and 45% of the motorcycle market. And for the whole of last year, it is believed to have sold 135,000 Proton cars and 7,000 Honda vehicles. Apart from selling 400 units of Audi and Volkswagen this year, it is expected to sell 12,000 Honda cars.
But as Saleh puts it, to spread the risk and maintain a healthy balance'', DRB-HICOM also has its fingers in the infrastructure/property development and services sectors.
However, earnings contribution from these two sectors was only 20%, compared with 80% from automotive, said Saleh, who reckoned that these percentages would remain although the pie would continue to grow bigger.
He declined to give any profit projections for the financial year (FY) ending March 31, 2003. For FY2002, the group posted a net profit of RM176mil, turnover of RM4.3bil and earnings per share (EPS) of 19.28 sen.
According to Multex Global Estimates consensus, for FY2003 and FY2004 DRB-HICOM is expected to rake in net profit of RM224mil and RM295mil, turnover of RM5.2bil and RM5.8bil, and EPS of 24.31 sen and 27.90 sen, respectively.
DRB-HICOM is indeed a major turnaround story now that its restructuring exercise is complete. It had also hived off unrelated businesses.
Many analysts are convinced and have a buy call on the stock. Others prefer to watch and have called a hold on the stock. To them what the group will do with EON Bhd remains a concern.
DRB-HICOM has plans to turn EON into a pure motor operating company; that is why EON has embarked on a capital repayment exercise. EON is getting out of banking to concentrate on the automotive industry and going regional. Selling vehicles is the group's ultimate aim with full implementation of the Asean Free Trade Area.
It is believed that DRB-HICOM would end up with about 15% of EON Capital Bhd, which controls EON Bank Bhd, after the capital repayment exercise.
Saleh stressed that EON would remain totally dedicated and loyal to the Proton marques, although the company had the capacity to handle and acquire one or two more franchises. But he conceded that franchises were not easy to come by.
On the experience of the 199798 financial crisis, Saleh said: It was a relief to be out of the financial stress; not only were temperatures rising, it was also not an easy period.
Now the group is moving in the right direction, and its financial health is improving.
As of FY2002, group debts stood at RM2.9bil, of which RM1.78bil was at operating companies' level and RM300mil at holding level (DRB-HICOM), with the balance RM872mil being long-term debt. Net gearing was 0.73 time.
A group of this size needs operating capital and we also have RM1.2bil in cash,'' Saleh said.
Although the group now has the resources, he was quick to say that it had to ''remain focused to ensure that resources were well managed''.
Saleh said that the temptations were there to venture into unrelated businesses but he was keeping a check on and mindful of three criteria: the activity must be synergistic to the business at hand, give the right returns on investment, and the group must be in control.
Many people, among them venture capitalists or even those wanting to be silent partners, had approached DRB-HICOM to venture into new deals, he disclosed.
The group's property division, Saleh said, had a land-bank of 3.8 million hectares in the country. However, the group would not rush to develop the land unless it could unlock value from it.
On infrastructure, he said the group had landed some big projects, and its order book, standing at about RM4bil, would keep the group busy till 2006.
These include the RM2.6bil turnkey Rawang to Ipoh electrified double-track project (EDTP); 15% of the billion-ringgit northern and southern portions of EDTP; and a RM1.1bil contract to build Universiti Pendidikan Sains Sultan Idris in Tanjong Malim.
The group is also in negotiations for the Sentul-Batu Caves rail project, said to be worth RM400milRM500mil.
Where the services division is concerned, DRB-HICOM, via Alam Flora, is into waste disposal in Kuala Lumpur, Selangor, Pahang, Terengganu and Kelantan, and has an arrangement to manage waste disposal in Bahrain.