Investment Highlights

• 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.

Source: AmInvest Research - 27 May 2022