We maintain our HOLD call on DRB-Hicom with a lower SOP-derived fair value of RM1.35 (from RM1.65) (Exhibit 4), which implies an FY22F PE of 18x.
DRB-Hicom’s 1Q22 results fell short of expectations with a core net loss of RM8mil (vs. 4Q21: RM199mil core net profit, 1Q21: RM32mil core net profit). The deterioration of the group’s performance was mainly attributed to the weaker automotive division earnings.
Post-results, we cut FY22F–24F earnings by 3%–10% after taking a more conservative view on our Proton’s sales volume assumption (Exhibit 3). We are also revising up our Honda sales assumption as a slew of recently launched models are expected to drive sales.
The automotive segment’s revenue shrank 17% YoY and 32% QoQ, dragged down by Proton’s uninspiring sales (- 21% YoY, -36.7% QoQ). This pulled automotive PBT lower to RM24mil (-70% YoY, -93% QoQ).
Proton’s sales were below our expectation with only 58,764 units sold, accounting for 19% of our previous estimate. Proton faced production issues such as flash floods which hit its factory in January and inventory shortages that affected delivery schedules. On a brighter note, Honda’s associate contribution improved by 2.9x underpinned by stronger sales volume (+38% YoY).
The aerospace & defence division’ losses narrowed YoY as revenue contribution from DEFTECH picked up. DEFTECH delivered a total of 237 units of AV-8 armoured vehicles as at 31 March 2022, with 22 more units for the rest of 2022.
The postal division’s LBT shrank to RM37mil (4Q21: LBT of RM179mil, 1Q21: LBT of RM51mil), despite reporting lower revenue. Pos Malaysia (HOLD, fair value RM0.76) attributed the better performance to its cost management efforts which led to lower transportation and delivery costs.
Bank Muamalat’s PBT improved YoY as it booked higher income from personal and property financing.
Moving forward, besides affecting its deliveries, we believe Proton’s inventory shortage would have a negative impact on customers’ after-sales service experience and may deter Proton’s years-long brand rehabilitation efforts. Over the longer term, this will hamper Proton from reaching its full potential.
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This book is the result of the author's many years of experience and observation throughout his 26 years in the stockbroking industry. It was written for general public to learn to invest based on facts and not on fantasies or hearsay....