Spirit Aerosystems' Stable Earnings Are Expected To Strengthen DRB-HICOM's Financial Performance - Analysts
KUALA LUMPUR, Aug 12 (Bernama) -- Spirit AeroSystems Malaysia Sdn Bhd’s stable earnings are expected to complement Composites Technology Research Malaysia Sdn Bhd (CTRM) operations and strengthen DRB-Hicom Bhd’s overall financial performance, said Hong Leong Investment Bank Bhd (HLIB).
HLIB has anticipated an additional earnings contribution of around RM45 million per year, following DRB’s wholly-owned subsidiary CTRM's plan to acquire aerospace manufacturer Spirit AeroSystems for RM426.1 million (US$95.2 million).
“The deal is expected to yield a negative goodwill gain of RM223.2 million, while CTRM will eliminate RM12.7 million in profits related to unsold inventory,” it said in a note today.
Nonetheless, HLIB said it remains cautious amid Malaysia’s competitive automotive market, as well as ongoing challenges from Pos Malaysia and DRB-HICOM Defence Technologies Sdn Bhd’s (Deftech) draggy performances.
“We remain cautious about DRB’s main business segment in automotive, given stiff market competition, while Pos Malaysia and Deftech remain as drags to the group, partially offset by steady contributors like Bank Muamalat and CTRM,” it added.
Meanwhile, Kenanga Investment Bank Bhd said Spirit Aerosystems will strengthen DRB-Hicom’s presence in the booming aerospace business, especially with the recent commitment by Malaysia and Indonesia to secure 30 and 50 new Boeing aircraft, respectively.
Nevertheless, pending the deal’s completion, the main concern is the fluctuation of earnings post-takeover because Spirit Aerosystems will be detached from the Spirit Group, thus losing the fixed-margin arrangement.
Briefly, Spirit Aerosystems is under a cost-plus arrangement before the takeover and any cost incurred is charged back with a fixed mark-up to the respective Spirit AeroSystems’ entities.
“Post-takeover, Spirit Aerosystems will be entering into supply agreements directly with Airbus and Boeing with no cost-plus arrangement,” it added.
HLIB has maintained a “Hold” call with a higher target price (TP) of 85 sen from 81.5 sen previously, while Kenanga has an “Underperform” call with an unchanged TP of 68 sen.
-- BERNAMA