Investment Highlights

• We maintain our BUY recommendation for DRB-Hicom with a lower SOP-based fair value (FV) of RM2.38/share (from RM2.55/share previously).

• We trim our FY21–23F net profit forecasts by 29%, 22% and 21% respectively after cutting our revenue and profit contribution from the services segment, predominantly 53.5%- owned Pos Malaysia.

• DRB-Hicom’s 1Q21 core net loss of RM17.0mil missed expectations (vs. our full-year forecast of RM233.6mil and full year consensus estimates of RM242.3mil. However, core net loss significantly narrowed from RM120.5mil in 1Q20, largely due to the earnings vacuum from MCO 1.0 last year.

• DRB’s automotive division recorded a 1Q21 revenue of RM2.6bil (+42% YoY) with a PBT of RM78.3mil. We believe that the increase from 1Q20’s LBT of RM90.4mil was due to: i) delayed deliveries of AV8 tanks and CTRM composite materials due to the MCO and global down cycle of the aviation industry throughout 1Q20 (with orders from Airbus and Boeing being pushed back; and ii) fiery demand for Proton’s flagship PIES models and X-series.

• Proton sold a total of 32.4K units of vehicles (+49% YoY) in 1Q21, driven by overwhelming sales of the groups PIES models, X50 and X70 SUVs given its value propositions with affordable price points. Collectively, the Proton X70 and X50 contributed 12.5K of the total sales in 2020, 39% of total sales volume in 1Q20.

• DRB’s services division posted a higher revenue in 1Q21 of RM863.7mil (+4% YoY) and the division reported a PBT of RM2.9mil (from an LBT of RM51.8mil in 1Q20). We believe that the improved results of the division was due to the better performance from Bank Muamalat as the unit moves on from the loan moratorium in 1Q20.

• DRB’s PAC division reported a 1Q21 revenue of RM69.7mil (- 25% YoY) and a lower PBT of RM3.8mil (-54% YoY). This is due to the fact that construction-related activities for Media City Development and ICQS have been fully completed. Going forward, this division will only recognize minimal revenue and will break even at best going forward into FY21–22F.

• With the extension of the SST exemption till 31 December 2021, 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 SUVs are competitively priced with advanced features for better consumer experience and are extremely value-for-money. We are also expecting a new Geely-inspired model (either MPV or Sedan) in 2021. Maintain BUY.

Source: AmInvest Research - 1 Jun 2021