- 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 9MFY14 result came in below expectations; it was dragged down by a significant dip in operating profit, which led to a core net loss in 3Q on lower automotive sales.

- For the nine-month period, it posted a core net profit of RM162mil (vs. a net loss of RM10mil in 9MFY13) on the back of a core net loss of RM45mil in 3QFY14. This represented only 37% and 46% of our and consensus numbers.

- DRB-Hicom declared a single-tier interim dividend of 1.50 sen/share (3QFY13: 1.50 sen gross less tax) amounting to RM29mil, which will be paid on 28 April 2014.

- The exceptional items in 3Q included a gain of RM111.7mil on the bargain purchase of Composites Technology Research Malaysia Sdn Bhd (CTRM).

- Notably, the automotive division slipped into an operating loss of RM75mil vs. a profit of RM147mil in the preceding quarter and a loss of RM89mil a year earlier.

- No details were given except that the group achieved a lower pre-tax profit of RM174.4mil in 3QFY14 vs. RM227.6mil in 2QFY14, mainly due to lower performance of certain automotive companies in the group.

- Automotive revenue in 3QFY14 fell by 13% QoQ, but was up by 26% YoY. For the 9MFY14, automotive still post an operating profit of RM152mil on the back of the strong 1HFY14 performance.

- Overall, revenue rose by only 2.7% YoY for 9MFY14, dragged by the underperformance of the property, asset and construction segment.

- DRB-Hicom said that in light of the highly competitive and challenging business landscape, the group will continue its efforts to improve operational efficiencies and to manage costs.

- The acquisitions of CTRM and Konsortium Logistik Bhd will broaden the group’s business activities in the composite material manufacturing and engineering industry and the integrated logistics services sector, respectively.

- We will be reviewing our forecasts, with a downside bias following the 3QFY14 result.

Source: AmeSecurities