Investment Highlights

• We maintain our BUY recommendation for DRB-Hicom with an unchanged SOP-based FV of RM3.18/share.

• DRB-Hicom’s 6MFY19 core net profit of RM89.4mil was in line with our expectations, accounting for 67% of our estimates and 28% of consensus estimates respectively. To recap, FY19 will only consist of 9 months as DRB changed its financial year-end. FY19’s horizon is from April 2019 to December 2019. We note a vast improvement in the group’s core earnings from a loss of RM36.4mil in 6MFY18. We expect DRB’s earnings to be less volatile going forward as we witness more stability from the group’s automotive segment.

• DRB’s automotive division recorded a compelling 6M19 revenue of RM4.7bil (+40% YoY) and a PBT of RM277.7mil. The massive improvement from 6M18’s LBT of RM143.6mil was due to: i) the stronger Proton’s overall sales volume; ii) spillover effect from Proton’s higher volume which led to improved contribution from the auto component business; and iii) higher percentage completion of AV8 and better sales deliveries from CTRM further improved the DRB’s defence & aviation segment.

• Proton seems to have registered another quarter of positive net profits, similar in trend to the previous two quarters with a higher volume of vehicles sold. In 6MFY19, Proton sold a total of 51.6K units of vehicles (+42% YoY). The Proton x70 comprised 12.0K of the total sales.

• DRB’s services division posted a lower revenue in 6M19 of RM2.2bil (-3% YoY) and a PBT of RM51.6mil (-56% YoY). We witnessed drags with lower revenues in its banking and logistics sub-segment under the services divison.

• DRB’s logistics business recorded a 6M19 revenue of RM1.1bil (-5% YoY). This is due to contraction in mail volume by Pos Malaysia. The group said it is in the midst of applying for a tariff rebalancing, in which the outcome is expected to be known soon.

• DRB’s PAC division reported a 6M19 revenue of RM211.7mil (-24% YoY) and a slightly lower PBT of RM52.2mil (-2% YoY). This was mainly due to lower revenue recognized from construction related projects mainly from Media City Development and Northern Gateway Infrastructure.

• All-in, we strongly believe that Proton’s turnaround is actually becoming a reality. We expect Proton to record another quarter of positive earnings in the next quarter to successfully turn around on a full-year basis.

• The upcoming introductions of the X70 and X50 CKDs are expected to sustain the Proton’s compelling sales volume as we envision the SUVs to be very attractively priced with advanced features for better consumer experience.

Source: AmInvest Research - 29 Nov 2019