Reported another profitable quarter at core PATMI of RM45.6m for 2QFY12/19, boosting core profit for 1HFY12/19 to RM85.6m, as compare to HLIB’s forecast of RM185m for FY12/19. We expect stronger earnings in coming quarter on higher car sales volume and stronger Bank Muamalat contribution. We maintain BUY recommendation on DRB with unchanged TP: RM3.50 (based on 15% discount to SOP: RM4.13) as we are positive with Proton’s growth outlook to benefit DRB on its equity stake as well as its automotive parts components segment.

Within expectation. DRB continued to report positive core PATMI for fourth consecutive quarter at RM45.6m for 2QFY12/19 and RM85.6m for 1HFY12/19 (change of FYE from Mar to Dec) as compared to HLIB’s forecast of RM185m for FY12/19. We expect stronger upcoming quarter due to seasonally stronger car sales volume in 4Q and stronger Bank Muamalat contribution.

QoQ. Core PATMI improved by 14.0% to RM45.6m mainly driven by higher EBIT from Automotive segment (Proton, Deftech and CTRM) and Poperty segment (disposal of commercial land). These were partly negated by higher group net finance costs, lower associate (mainly Honda) contribution and higher effective tax rate.

YoY/YTD. Core PATMI improved to RM45.6m in 2QFY12/19 (vs. RM3.3m in 2QFY03/19) and RM85.6m in 1HFY12/19 (vs. LATMI RM12.8m in 1HFY03/19), mainly driven by the successful turnaround of Proton and higher contribution from Property segment, partially offset by widened loss making PosM and lower associates contribution.

Proton. Proton remains profitable in the quarter with higher car sales and continuous cost cutting initiatives. The anticipated upcoming X70 CKD model and X50 CKD model are expected to further boost overall Proton sales in FY20 and FY21. Moreover the expected new Proton assembling line will enable Proton to re-commence its long waited export program and eventually become top 3 OEMs in the Southeast Asia region.

Restructuring. DRB is also undergoing restructuring program to streamline its businesses with upcoming exercises: 1) disposal of Alam Flora to Malakoff by 1QFY20; and 2) asset-land swap with major shareholder Tan Sri Syed Mokhtar by 1QFY20. In the meantime, the group is also in the midst of refinancing its debt structure.

Forecast. Unchanged.

Maintain BUY, TP: RM3.50. We retain our BUY recommendation with unchanged TP: RM3.50 based on 15% discount to SOP: RM4.13. We remain positive on Proton’s outlook as it continues to enjoy strong sales growth with attractive model line-ups. Proton has remained profitable for third consecutive quarter into 2QFY12/19.

Source: Hong Leong Investment Bank Research - 5 Dec 2019