Investment Highlights

• We maintain our BUY recommendation for DRB-Hicom with an unchanged SOP-based fair value of RM2.49/share (Exhibit 3). We now project a wider FY20F core net loss of RM81.8mil (from RM57.3mil previously). We leave our FY21– 22F estimates unchanged.
• DRB-Hicom’s 9MFY20 core net loss of RM162.3mil was higher than our projected loss of RM57.3mil and consensus estimate of -RM111.4mil for FY20 respectively.
• DRB’s automotive division recorded a 9MFY20 revenue of RM5.4bil (-20% YoY) and an LBT of RM265.3mil. We believe that the decline from 9M19’s PBT of RM492.7mil was due to: i) the delayed deliveries of AV8 tanks and CTRM composite materials due to the MCO; ii) lower Honda sales; and iii) weaker auto component revenue due to the MCO.
• Proton sold a total of 73.5K units of vehicles (+5% YoY) in 9MFY20 despite the implementation of the MCO from 18 March till 4 May 2020. The Proton X70 contributed 15.6K of the total sales (see Exhibit 4).
• DRB’s services division posted a lower revenue in 9MFY20 of RM2.6bil (-22% YoY) and the division reported an LBT of RM5.5mil (-107% YoY). The unfavourable results was due to the weaker performance of Bank Muamalat as a result of the recognition of modification losses from loan moratorium.
• DRB’s logistics business recorded a 9MFY20 revenue of RM1.7bil, an increase of 4% YoY. We believe that this was attributed to the higher demand from e-commerce and online marketplace and the tariff hike, which enhanced 53.5%-owned Pos Malaysia’s performance in 3QFY20.
• DRB’s PAC division reported a 9MFY20 revenue of RM276.6mil (-29% YoY) and a lower PBT of RM16.9mil (-91% 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.
• Despite the poor set of 9MFY20 results largely due to the MCO, we think that the worst is behind DRB-Hicom. With the SST exemption, we strongly believe that Proton’s PIES models, and both the Geely-inspired Proton X70 and X50 CKDs are expected to lift Proton’s sales volume and earnings in the future – as its cars are very competitively priced with advanced features for better consumer experience and are extremely value-for-money. Maintain BUY.

Source: AmInvest Research - 27 Nov 2020