DRB-Hicom Bhd(June 10, RM2.36)Maintain buy at target price of RM3.60: By ramping up production with its partner, DRB-Hicom Bhd, Volkswagen AG (VW) targets to double car sales in Malaysia to 23,000 units this year, according to a Bernama report. DRB-Hicom’s plant in Pekan, Pahang started the production of VW’s Passat in early 2012 and the Polo in October 2013. According to the report citing Soh Weiming, VW president of commercial operations of Greater China/Asean, the plant is set to roll out the Jetta model by the first half of this year. He also said that 75% of the cars to be sold this year are expected to be locally produced from the Pekan plant. Over the long term, VW plans to sell more than 50,000 cars a year in Malaysia, which has a market size of 550,000 units per year. Notably, the automotive division remained in the red in the fourth quarter of financial year 2014 (4QFY14), albeit at a lower amount against the previous quarter, with an estimated earnings before interest and tax (Ebit) of -RM44 million against -RM131.4 million in 3QFY14. Proton car sales for FY14 fell 2.3% to 137,144 units. In 4QFY14, the sales volume at 32,734 units was up 6.6% quarter-on-quarter, but down 4.7% year-on-year. For the full year, the division managed to stay in the black with an Ebit of RM90 million, with contributions from the AV8 project and the inclusion of aerospace composite business. We reiterate our “buy” call on DRB-Hicom, with an unchanged fair value of RM3.60 per share — a 15% discount to our sum-of-parts value of RM4.25 per share. — AmResearch, June 10. This article first appeared in The Edge Financial Daily, on June 11, 2014.