- By ramping up production with its partner, DRB-Hicom Bhd, Volkswagen (VW) AG targets to double car sales in Malaysia to 23,000 units this year, according to a Bernama report.

- DRB-Hicom plant in Pekan, Pahang started the production of VW’s Passat in early 2012 and the Polo in October 2013.

- According to the report citing Soh Weiming VW president of commercial operations of Greater China/Asean, the plant is set to roll out the Jetta model by the first half of this year.

- He also said that 75% of the cars to be sold this year are expected to be locally produced from the Pekan plant.

- Over the long term, VW plans to sell more than 50,000 cars a year in Malaysia, which has a market size of 550,000 units per year.

- Apart from its profitable activities in the assembling, distribution, and retailing of non-national makes and defence contracts, DRB-Hicom’s automotive division is beset by problems at Proton and Lotus.

- Notably, the automotive division remained in the red in 4QFY14, albeit at a lower amount vs. the previous quarter, with an estimated EBIT of -RM44mil vs. -RM131.4mil in 3QFY14.

- Proton car sales for FY14 fell 2.3% to 137,144 units. In 4QFY14, the sales volume at 32,734 units was up 6.6% QoQ, but down 4.7% YoY.

- For the full year, the division managed to stay in the black with an EBIT of RM90mil, with contributions from the AV8 project and the inclusion of aerospace composite business.

- We maintain our FY15F-FY16F numbers. Its automotive division should show better performances in the quarters ahead as the AV8 project goes into the commercial production phase later during the year.

- We reiterate our BUY call on DRB-Hicom, with an unchanged fair value of RM3.60/share – a 15% discount to our SOP value of RM4.25/share.

Source: AmeSecurities