DRB reported core LATMI of –RM317.7m for 2QFY20 and –RM385.6m for 1HFY20, within our expectation (below consensus), dragged by overall weaker group sales following the spread of Covid-19 and implementation of MCO since mid-Mar 2020, as well as modification loss. We expect a strong earnings rebound for DRB in 2HFY20, leveraging on SST exemption for passenger cars from 15 Jun to 31 Dec 2020. We maintain BUY recommendation on DRB with unchanged TP: RM2.52, based on lower 25% discount to SOP: RM3.35.

Within expectation. DRB reported core LATMI –RM317.7m for 2QFY20 (vs. 1QFY20: LATMI –RM67.9m; and SPLY: PATMI RM22.2m) and LATMI –RM385.6m for 1HFY20 (vs. SPLY: PATMI RM170.0m), as compare to HLIB’s FY20 forecast of LATMI –RM82.0m (in line) and consensus PATMI +RM159.0m (below). We expect recovery in the group sales in view of implementation of SST exemption for passenger cars and PENJANA measures in 2HFY20. During the quarter, the group recognised modification loss on loan moratorium amounting to RM46.2m from Bank Muamalat and RM14.4m from Proton’s financing arm.

QoQ. DRB reported widened core LATMI –RM317.7m in 2QFY20 vs –RM67.9m in 1QFY20, mainly dragged by lower overall group sales volume and modification loss, following longer impact from implementation of MCO during the quarter. Nevertheless, QoQ saw turnaround contribution from service following Pos recorded operational breakeven (from LBIT –RM35.2m in 1QFY20), benefitting from effective postal rate hike in Feb 2020 and higher postal volume.

YoY & YTD. Results turned to LATMI –RM317.7m in 2QFY20 (vs. PATMI RM22.2m SPLY) and –RM385.6m in 1HFY20 (vs. PATMI RM170.6m SPLY), mainly affected by Covid-19 and implementation of MCO on the group wide businesses, and coupled with the disposal of Alam Flora effective Dec 2019.

Automotive: DRB is expected to record a strong rebound in 2HFY20, driven by high automotive demand following implementation of SST exemptions from 15 Jun to 31 Dec 2020. Proton has reported a record high of 13.7k unit sales in July. Upcoming exciting models for the group include new Proton X50, new Honda City, facelift Honda CR-V, new Mitsubishi Xpander and new VW Tiguan Allspace in 2HFY20. However, Deftech and CTRM may remain affected by the government’s cut in defence budget and global aviation crisis.

Services: Pos Malaysia is benefitting from the increasing courier volume and higher postal rate while it’s logistic will leverage on the uptick in automotive demand, partially offset by the downturn in aviation segment. Bank Muamalat is implementing various cost cutting measures and expanding its services and revenue to cushion the impact from Covid-19.

Property: Results are likely to sustain from the commencement of concession earnings for Bukit Kayu Hitam ICQS and Media City, while construction work on Media City has resumed again.

Forecast. Unchanged.

Maintain BUY, TP: RM2.52. We retain our BUY recommendation with unchanged TP: RM2.52 based on 25% discount to SOP: RM3.35. We remain positive on DRB’s outlook as it continues to enjoy strong automotive sales growth, leveraging on SST exemptions, along with attractive model line-up from Proton, Honda and Mitsubishi. DRB also has strong leverage onto the strong growth momentum of Proton within the next few years.

Source: Hong Leong Investment Bank Research - 1 Sept 2020