Investment Highlights

• We maintain BUY on DRB-Hicom with an unchanged SOPbased FV of RM2.49/share. We now project an FY20F core net loss of RM57.3mil (vs. a net profit of RM78.3mil previously). We leave our FY21–22F estimates unchanged.

• DRB-Hicom’s 1HFY20 core net loss of RM227.8mil came in below our and consensus full-year net profit forecasts of RM78.3mil and RM87.0mil respectively. DRB’s core net profit slid 215% YoY compared to 1H19’s RM198.0mil.

• DRB’s automotive division recorded a 1H20 revenue of RM2.9bil (-33% YoY) and an LBT of RM395.6mil. We believe that the decline from 1H19 PBT of RM380.7mil was due to: i) lower Proton’s overall sales volume; ii) spillover effects from Proton’s reduced volume which led to lower contribution from the auto component business; and iii) delayed deliveries of AV8 tanks and CTRM composite materials due to the MCO.

• Proton sold a total of 37.1K units of vehicles (-15% YoY) in 1H20. The Proton X70 contributed 6.9K (-55% YoY) of the total sales (see Exhibit 4).

• DRB’s services division posted a lower revenue in 1H20 of RM1.7bil (-26% YoY) and the division reported an LBT of RM55.9mil (-204% YoY). The unfavourable results of the division was due to lower performance from Bank Muamalat, as a result of modification losses arising from loan moratorium in accordance with MFRS 9.

• DRB’s logistics business recorded only a marginal decline in 1H20 revenue to RM527.4mil (-6% YoY). We gather that this was due to stronger demand from its e-commerce and online marketplace amidst the MCO, which contributed positively to the courier business i.e. Pos Malaysia.

• DRB’s PAC division reported a 1H20 revenue of RM172.2mil (-41% YoY) and a lower PBT of RM6.4mil (-96% YoY). This was driven by lower revenue recognized from constructionrelated projects mainly from Media City Development due to the MCO-related temporary closure of construction sites.

• Despite a poor set of 1H20 results largely due to the MCO, we think that the worst is now behind DRB-Hicom. With the SST holiday, we strongly believe that Proton’s PIES models, the X70 SUV and the upcoming X50 CKD are expected to sustain Proton’s compelling sales volume as its SUVs remain attractively priced with advanced features for better consumer experience and affordability. Maintain BUY.

Source: AmInvest Research - 1 Sept 2020