- We maintain BUY on DRB-Hicom Bhd, with an unchanged fair value of RM3.65/share – a 15% discount to our SOP value of RM4.31/share.

- DRB-Hicom’s 1HFY14’s core net profit of RM206.7mil (+66.4% YoY) is in line with expectations – accounting for 52% and 47% of consensus and our forecasts, respectively.

- Revenue of RM6.7bil (-4.2%) too accounted for 47% of our projected amount but fell short of consensus at just 43%. The result was achieved on the back of improved performances at the automotive segment.

- Group EBIT (after accounting for unallocated expenses) rose by 41% YoY to RM415mil from RM295mil on a near tripling of automotive earnings in 2QFY14 while the other segments saw declines.

- EBIT margin improved by 2ppts YoY to 6.2% in 1HFY14 and even more noticeably to 7.8% in 2QFY14. The group says higher sales of motor vehicles in 2QFY14 and improving operational efficiency of the concession businesses contributed positively to the overall results.

- Though automotive revenue fell by 4% to RM5.3bil in 1HFY14, the segment’s operating result (before deducting unallocated expenses) surged by 178% to RM228mil.

- Notably, the automotive operating result nearly quadrupled to RM147mil in 2QFY14 (+84% QoQ) from RM38mil a year earlier. During the period, Its subsidiary Proton had launched the Saga SV and the Suprima S.

- Additionally, the services segment’s operating result in 2QFY14 grew by 108% QoQ to RM103mil, but fell 15% YoY, and was still 22% down YoY for 1HFY14.

- In its notes, DRB-Hicom says the divestments of certain identified non-core assets are progressing and will be finalised by the end of FY14.

- A notable catalyst for the stock would the firming up of the group’s RM7.5bil armoured-wheeled vehicle contract with the government – which is expected to be kick-started by the second half of 2014.

- In the meantime, things appear to be looking more settled for Proton’s UK unit Lotus, which has seen significant write-downs and is in need of a new product range.

- It was reported recently that Lotus has been awarded a £10.44mil grant from the UK government’s Regional Growth Fund towards supporting its R&D and creating 313 jobs. This, we believe, is a timely endorsement from the UK government of Lotus’ going concern.

Source: AmeSecurities