Hidden Value in the Unloved: Why DRB-HICOM Berhad's Asset Decomposition Could Be a Catalyst for Growth

The stock market often rewards simplicity, but complexity can be a blessing in disguise. Take DRB-HICOM Berhad (Bursa Malaysia: 1619), the Malaysian conglomerate whose shares have fallen by 34.68% year-to-date as of June 2025. At a market capitalization of 1.4 billion Malaysian Ringgit (MYR), the company trades at just 9.1x trailing P/E, a valuation that seems disconnected from its sprawling portfolio of assets. For investors willing to dissect its subsidiaries and sectors, DRB-HICOM may offer a rare opportunity to buy a basket of undervalued assets at a discount.

The Case for Asset Decomposition: Summing the Parts

DRB-HICOM's undervaluation argument hinges on its ability to unlock value through asset decomposition—the process of identifying and monetizing subsidiaries or divisions whose standalone worth exceeds their embedded value. Consider these key divisions:

1. Proton Holdings Berhad: Malaysia's national carmaker, which DRB-HICOM co-owns with China's Geely, has been revitalized by strategic partnerships and electric vehicle (EV) ambitions. While the automotive sector faces headwinds—Total Industry Volume (TIV) dropped 7% in Q1 2025—Proton's RM154 million net income (company-level) and Geely's technical support suggest long-term potential. A standalone valuation could easily exceed its current embedded value, especially if EV adoption accelerates.

2. Bank Muamalat Malaysia: This Islamic banking subsidiary operates in a niche but growing sector. With a 4.4% revenue rise in Q1 2025, its sharia-compliant financing model may gain traction as global capital flows increasingly seek ESG-aligned assets. At a 1.4B MYR market cap, DRB-HICOM's stake in Bank Muamalat alone could justify a higher valuation.

3. CTR Mposites (CTRM): A leader in aerospace composites, supplying Airbus and Boeing, this division operates in a high-margin, stable sector. Its technology and global contracts suggest it's a cash generator whose value isn't reflected in DRB-HICOM's depressed stock price.

4. Pos Malaysia Berhad: Despite recent losses, the national postal service holds strategic logistics assets. A turnaround could be catalyzed by government support or a pivot to e-commerce fulfillment—a RM3 billion sector in Malaysia by 2025.

Sector-Specific Catalysts to Watch

The company's valuation could surge if any of these divisions hit their growth targets:
- Automotive Recovery: Proton's RM1.2 billion EV investment and Geely's global reach could turn around its 7% TIV decline.
- Banking Growth: Bank Muamalat's 4.4% revenue rise hints at scalability in Islamic finance.
- Aerospace Demand: CTRM's orders from Boeing and Airbus, if sustained, could boost margins.
- Postal Turnaround: A RM1 billion asset sale or restructuring at Pos Malaysia could eliminate losses.

Risks and Reality Checks

The skeptics have points. DRB-HICOM's debt levels, leadership transitions (e.g., Datuk Idris Abdullah's resignation), and 34.68% YTD stock decline reflect investor anxiety. Pos Malaysia's losses and the automotive sector's struggles also loom large. Yet, these risks are already priced in. The question is whether the sum of the parts exceeds the current market cap.

The Investment Thesis

At 0.7250 MYR per share, DRB-HICOM trades at a 30% discount to its estimated asset value (assuming Proton and CTRM alone are worth 1.0B MYR). Add in Bank Muamalat's potential and the possibility of a Pos Malaysia turnaround, and the case for undervaluation strengthens.

Buy Signal: Consider a position if the stock dips below 0.70 MYR, with a 12-month target of 0.95 MYR.

Hold Signal: Wait for clearer catalysts, such as Proton's EV sales ramp-up or CTRM's order backlog.

Conclusion: A Conglomerate's Time to Shine

DRB-HICOM's complexity is its curse—and its cure. In a market obsessed with simplicity, this conglomerate's hidden assets may finally get their due. For investors with a stomach for volatility and a knack for dissecting balance sheets, the time to act may be now.

The road ahead is bumpy, but the destination could be worth the ride.