Investment Highlights

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

• DRB-Hicom’s FY19 core net profit of RM141.3mil was in line with our expectation, accounting for 105% of our estimates and 141% of consensus estimates respectively. To recap, DRB-Hicom’s FY19 is 9 months (April–Dec 2019) as it has changed its financial year-end to Dec. DRB’s core net profit improved by a whopping 461% YoY compared to 9MFY18’s RM25.2mil.

• DRB’s automotive division recorded an improved FY19 revenue of RM7.0bil (+33% YoY) and a PBT of RM342.0mil. We believe that the significant improvement from 9M18’s LBT of RM208.2mil was due to: i) 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) better sales deliveries from CTRM which further improved DRB’s aerospace segment’s sales volume.

• Proton sold a total of 81.9K units of vehicles (+58% YoY) in FY19. The Proton X70 contributed 18.3K of the total sales (see Exhibit 4). Proton CEO Dr Li Chunrong confirmed that Proton has successfully returned to the black in FY19. This marks the first time the first national car returned to profitability since its acquisition by DRB-Hicom in 2012.

• DRB’s services division posted a lower revenue in FY19 of RM3.2bil (-5% YoY) and the division reported an LBT of RM275.1mil (-253% YoY). The unfavourable results of the division was due to continuous losses from its postal & logistics segment and an impairment of goodwill in certain subsidiary companies. No further details is available on this.

• DRB’s logistics business recorded an FY19 revenue of RM1.6bil (-5% YoY). We believe that this was attributed to a continuous decline in the mail volume of Pos Malaysia due to digital substitution. The company guided that Pos Malaysia has implemented the new tariffs for commercial postage and international businesses.

• DRB’s PAC division reported an FY19 revenue of RM290.9mil (-20% YoY) and a lower PBT of RM50.3mil (-60% YoY). This was mainly driven by lower revenue recognized from construction-related projects mainly from Media City Development and Northern Gateway Infrastructure; and the completion of ICQS in Bukit Kayu Hitam.

• We strongly believe that Proton’s PIES models, yje recent introduction of the X70 and the upcoming X50 CKDs are expected to sustain the Proton’s compelling sales volume as its SUVs remain attractively priced with advanced features for better consumer experience and affordability.

Source: AmInvest Research - 2 Mar 2020