Reported core PATMI of RM208.4m for 4QFY19 and RM256.7m for FY19, above HLIB’s expectations and consensus, driven by improved Automotive segment (lower Proton operation loss and higher Deftech contribution) and Property segment (new contribution from Media City and Northern Gateway). We raise FY19-20 earnings by 198.5% and 120.7%, following the upgrade in Proton’s sales and margins and higher Property contribution. Reiterate BUY on DRB with higher TP: RM3.03 (from RM2.78), based on 10% discount to SOP: RM3.37, following higher valuation for Proton.

Above expectations. Reported 4QFY19 core PATMI of RM208.4m, boosting FY19 core PATMI to RM256.7m, against HLIB FY19 forecast profit of RM81.2m and consensus RM100.4m, driven by stronger than expected Automotive and Property segments. We believe Proton has shown good turnaround progress during the quarter with strong demand for SUV X70 model, as we note (i) Automotive EBIT has turned positive of RM249m and (ii) profits attributable to minority interest of RM71.9m (despite the 53.5% owned PosM reported a loss of RM141.1m in 4QFY19). The jump in Property segment was due to concession contribution from Media City and Northern Gateway ICQS project.

QoQ/YoY. Core PATMI expanded to RM208.4m from RM61.1m in 3QFY19 and RM0.2m in 4QFY18, mainly attributed to strong earnings contribution from Automotive segment (driven by higher Proton sales and margins) and Property segment (Media City and Northern Gateway ICQS).

FY19. PATMI returned to black of RM256.7m, a significant improvement from a loss of RM274.3m in FY18, due to: (i) lower loss of Proton; (ii) higher earning recognition from Deftech; (iii) stronger Property earnings; and (iv) disposal of loss-making Lotus since 3QFY18.

Outlook. DRB will continue to leverage on Proton’s strong momentum of sales volume growth, following the participation of Geely as Proton’s Foreign Strategic Partner since 3QFY18. Proton has already showed signs of turnaround in 4QFY19, driven by strong sales volume of new X70 SUV model. Proton has also recently launched facelift version for Iriz, Persona and Exora in Apr-May 2019. Upcoming exciting model line-ups include facelift Saga (2HCY19), new Geely based X50 SUV (2HCY19) and Geely based MPV model (2020), which will continue to build Proton’s sales momentum for the next 2 years. Proton will eventually leverage on Geely to expand into China market, regional ASEAN market and North Asian market.

Forecast. Raise earnings for FY20 and FY21 by 198.5% and 120.7%, following the upgrade in Proton’s sales and margins as well as Property contribution.

Maintain BUY, TP: RM3.03. We raise our TP to RM3.03 (from RM2.78) based on 10% discount to SOP: RM3.37), following the higher valuation for Proton (partially offset by the cut in TP for Pos Malaysia to RM1.36 from RM1.90). We reiterate our BUY recommendation on DRB as Proton has shown signs of positive turnaround in 4QFY19 and we are confident with its potential growth.

Source: Hong Leong Investment Bank Research - 31 May 2019