Tuesday, July 23

AmInvestment Bank downgrades DRB-Hicom rating as MACC investigates Deftech

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KUCHING: DRB-Hicom Bhd’s (DRB-Hicom) rating has been downgraded to ‘underweight’ by AmInvestment Bank Bhd (AmInvestment Bank) following the group’s confirmation that the Malaysian Anti-Corruption Commission (MACC) is investigating its subsidiary, Defence Technologies Sdn Bhd (Deftech).

In a statement on Monday, DRB-Hicom confirmed the media report relating to Deftech on the investigation connected to Deftech by MACC.

“At the same time, DRB-Hicom wishes to emphasise that DRB-Hicom and Deftech shall provide utmost cooperation to the authorities in this matter,” the group said.

Bernama reported that MACC had arrested a chief executive officer and a chief financial officer of a company for suspected corruption over a project worth RM17 million to supply equipment for military vehicles.

“Both are suspected of receiving bribes amounting to hundreds of thousands from several companies for the supply of equipment for the AV8 and Adnan armoured carrier vehicles between 2015 and 2017.

“MACC also seized RM100,000 in cash and documents related to the project. The case is being investigated under Section 16(a)(A) of the MACC Act,” the article read.

AmInvestment Bank opined that there may be questions if this is an isolated case or whether there is a need to relook the company’s procurement process.

“Also, it is uncertain if the incident will have any effect on the group’s standing in future government defence contracts,” the research firm said.

With that said, the research firm believed that its increase in the sum of parts (SOP) discount rate is justified based on the potential negative sentiment arising from the MACC’s probe.

“We are downgrading DRB-Hicom to ‘underweight’ from ‘hold’ with a lower fair value of RM1.74 per share based on a higher discount rate of 30 per cent in our SOP valuation from 20 per cent previously.

“The downgrade is due to potential negative sentiment arising from the arrest of the group’s executives by the MACC and uncertainties in respect of the group’s ability to secure government contracts in the future.”