DRB-Hicom (DRB) reported a net loss of RM5.3m in 3QFY24, compared to a net profit of RM70.8m in 3QFY23, due to weaker vehicle sales and higher derivative loss of RM80m. The results were below both our and consensus estimates, at 29.5% and 21.6% of full-year forecasts respectively. We trimmed our FY24-FY26F earnings forecasts by average of 20%, factoring in higher operating expenses and weaker performance across all its business divisions. Consequently, our sum-of-parts (SOP) based TP is revised to RM1.10 (previously RM1.38). We maintain a Neutral call on DRB.

• 3QFY24 Revenue increased marginally by 3.4% YoY to RM4.1bn, mainly driven by higher contribution from the banking, services and aviation & defence (A&D) sectors. The banking sector saw a 22.4% YoY increase in revenue, fueled by higher financing income and broader customer base. The service sector posted a 24.6% YoY revenue growth, driven by an uptick in ground handling, in-flight catering and increased vehicle inspection at PUSPAKOM. A&D revenue grew by 20% YoY, reflecting higher deliveries of aircraft parts. However, this was partially offset by lower revenue in automotive, postal and property segments. The automotive sector experienced a slight revenue decrease of 0.6% YoY due to lower vehicle sales. PROTON's sales volume dropped 3.5% YoY to 38,127 units in 3QFY24 (3QFY23: 39,511 units), impacted by intense competition and the influx of foreign brands into the domestic market. The postal sector's revenue fell 9.8% YoY to RM255.4m due to a decline in international and bulk mail volume amid a broader industry slowdown. The property segment's revenue dropped 11.7% YoY, primarily due to the completion of the concession project last year, with revenue now deriving solely from maintenance services.
• 3QFY24 reported a net loss of RM5.3m, compared to a net profit of RM70.8m in 3QFY23, primarily due to weaker performance in the automotive business and higher derivative loss of RM80m. Automotive profit before tax (PBT) dropped 36.4% YoY to RM102.5m, due to lower sales volume and reduced margins caused by intense competition in the local car market. Losses in the postal business widened by 11.1% YoY to RM34.0m, due to decreased revenue from international operations. Property segment's losses also widened by 23.5% YoY to RM8.4m due to the absence properties sales. The banking, services and A&D segments also reported weaker performance despite higher revenue.
• Proton e.MAS. Proton's first national electric vehicles (EV), e.MAS 7 is scheduled to launch in Malaysia in Dec 2024. The e.MAS 7 will be a completely built-up (CBU), priced competitively starting at RM120k. It is widely expected to share the mechanical components with the Geely Galaxy E5. However, the sales volume for e.MAS 7 is expected to be modest during our forecast period. With the EV market becoming increasingly competitive, e.MAS 7 is strategically priced to rival the upcoming Perodua EV model, which is expected to be priced under RM100k.
• Subdued outlook. While the Malaysia Automotive Association has recently revised Malaysia's Total Industry Volume (TIV) forecast to 800,000 units for 2024, a softer demand is anticipated in 2025 due to the expected rationalisation of fuel subsidy, weaker consumer sentiment, and a lack of catalysts for the auto sector. Additionally, the influx of new model launches and competitive pricing may intensify market competition, further squeezing sector margins and limiting earnings growth.

Source: PublicInvest Research - 22 Nov 2024