Investment Highlights

• We maintain our HOLD call and SOP-based FV of RM1.99/share on DRB-Hicom. We cut our FY18 projection by 43% to RM55mil, and FY19-20 projections by 13-24%.

• DRB registered a core net loss of RM39mil in its 1QFY19, a 76% YoY improvement. Exceptional items were namely a RM27mil forex difference, RM9mil gain on derivatives and RM8mil allowance for doubtful debts.

• The group continued to be dragged down by its automotive segment, which saw an operational loss of RM188mil and remained as the only one that has consistently been in the red. The loss was partially cushioned by higher earnings from its property segment and associate (34%-owned Honda saw sales improve 8% YoY during the quarter).

• The automotive segment saw revenue drop 34% YoY and its loss before tax slid by 3% YoY, tied mainly to a fall in Proton sales. Proton sales of 14.2K during the quarter was up 11% QoQ but lower 29% YoY.

• Revenue from the defence sub-segment was flat, while automotive distribution plunged 52% on lower car sales. We believe losses from the automotive segment should reduce from this quarter given the impact of the tax holiday and entry of the Proton Boyue by year-end.

• Proton looks to be one of the biggest beneficiaries of the tax holiday: average sales in June-July of 7.1K/month were 70% higher compared to the prior months. Moreover, a new model should lift Proton’s ASP from the paltry ~RM43K seen in 1Q19, the lowest seen in six quarters.

• The Boyue SUV will debut with an initial batch of 2K CBU units. We believe it will be priced in between the Japanese brands and Perodua. The real measure of Proton’s reform will be the localization process that will kick-start in early 2019.

• On its other segments, services saw a flat YoY revenue but PBT tumbled 45%YoY, on weaker banking and logistic revenues. Its property segment, which contributed 5% to group topline, remains volatile at best, and information on this area has been deeply lacking.

Source: AmInvest Research - 29 Aug 2018