DRB-Hicom (DRB) 3QFY23 reported a weaker net profit of RM70.8m (-80.1% YoY) mainly due to lower contribution from auto sales and DEFTECH following completion of AV8, though stronger QoQ (+110%) owing to lower expenses and tax assets. This brings cumulative 9MFY23 core net profit to RM212.4m. The results were within our estimates at 70.2% of full year estimates, though slightly below market expectations at 68.3%. No changes to our estimates. We continue to like the DRB’s growth prospects and retain our Outperform call with unchanged sum-of-parts (SOP) based TP of RM2.10.

• Revenue fell by 12.0% YoY to RM4.0bn in 3QFY23 largely due to lower auto sales, especially from PROTON. Automotive revenue declined by 15.3% to RM2.9bn on lower sales volume, particularly PROTON. PROTON sold 39,511 units in 3QFY23 compared to 40,626 units in 3QFY22 due to competitive markets. This was somewhat offset by higher financing income from Bank Muamalat (+35.5% YoY) and higher revenue from its Services segment (+9.0% YoY) due to increased demand for in-flight catering business, in line with the growing number of flights.

• Net profit in 3QFY23 fell by 50.8% to RM70.8m, in line with lower revenue and contribution from auto sales and DEFTECH following full completion of AV8. Automotive segment pre-tax profit (PBT) tumbled 43.9% to RM161.2m on lower sales volume and PROTON’s sales mix. Whereas PBT from Defence and Aviation (D&A) segment plummeted by 97.3% to RM0.6m following the completion of AV8.

• Outlook. Despite the expiry of the sales and service tax (SST) holiday and rising interest rates, demand for the Group’s offering remains healthy, underpinned by new model launches. PROTON officially entered the EV market with Smart #1 in Nov 2023 and targets to introduce its first EV by 2025. The Group is also committed to strengthening its operational efficiency for its other core business segments.

Source: PublicInvest Research - 24 Nov 2023