Ended FY18 with a core loss of RM285.7m (-43.8% YoY), below HLIB expectation, mainly dragged by Proton and Pos. DRB is expected to be dragged by Proton’s near term losses prior to the launch of new SUV model by end 2018. However, DRB’s other main contributors - Muamalat, CTRM and Honda are expected to remain stable with steady cash flow. Cut FY19-20 earnings by 69.3% and 48.5% respectively on lower profits assumptions from Proton and Pos. Maintain BUY with lower TP: RM2.50 (from RM2.88), as we are positive on Geely’s commitment in turning around Proton and establishing Proton as its platform for regional ASEAN market expansion. Recommended final single tier dividend of 3 sen/share.

Below expectation. Reported core losses of RM17.3m for 4QFY18 and RM285.7m for FY18, worse than HLIB FY18 forecast loss of RM79.3m, mainly dragged by: 1) under-performance of Proton sales and margins; and 2) weaker than expected Pos earnings on high staff costs and stiff competitions. However, the loss was relatively in line with consensus RM324.8m.

Dividend. Recommended final single tier dividend of 3 sen/share.

QoQ. Turned to core loss of RM17.3m from core profit of RM31.2m (3QFY18), dragged by higher core loss of Automotive segment (on lower automotive sales volume and deteriorated sales mix from Defence & Aviation) and turned core loss in Property segment (due to deteriorated sales), partially offset by higher contribution from Services segment as well as associates & JVs contribution (on RM appreciation).

YoY. Core loss reduced significantly to RM17.3m from RM231.0m (4QFY17), attributed to: 1) improved automotive operating margins (higher revenue mix from Defense & Aviation and Automotive components); 2) partial attribution of Proton’s loss to minority shareholder – Geely; and 3) higher contribution from associates & JVs contribution on RM appreciation.

YTD. Similarly, core loss was cut by 43.8% following the completion of Proton’s strategic foreign partnership exercise (49.9% stake dilution in heavy loss making Proton to Geely and 100% stake disposal in Lotus to Geely and Etika Strategy) and stronger contribution from Services segment.

Outlook. DRB is expected to remain dragged down by poor Proton sales in the near term prior to the launch of highly anticipated SUV Boyue model by end 2018. Proton’s strategic partner, Geely is committed to the turnaround of Proton, given the use of Proton as Geely’s strategic platform to penetration into ASEAN market. On the bright side, DRB’s earnings and cash flow are expected to be supported by the stable performance of Bank Muamalat, CTRM and Honda.

Forecast. We cut our earnings for FY19 and FY20 by 69.3% and 48.5% on lower expectation on Proton and Pos.

Maintain BUY, TP: RM2.50. Following our earnings adjustments, we cut TP to RM2.50 from RM2.88. WE maintain BUY recommendation on DRB, as we are positive on Geely’s commitment in turning around Proton and establish Proton as its platform for regional ASEAN market expansion.

Source: Hong Leong Investment Bank Research - 1 Jun 2018