DRB reported a strong QoQ improvement to core LATMI of -RM5.6m for 3QFY20 (from -RM283.9m). However, 9MFY20 remained in the red at -RM357.4m, below expectations due to 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 4QFY20 due to several new model launches during the quarter and consumer making purchases prior to the end of SST exemption for passenger cars by 31 Dec 2020. We maintain BUY recommendation on DRB with lower TP: RM2.45 (from RM2.52), based on unchanged 25% discount to SOP: RM3.27.

Below expectation. DRB reported core LATMI -RM5.6m for 3QFY20 (vs. 2QFY20: LATMI -RM283.9m; and SPLY: PATMI RM34.1m) and LATMI of -RM357.4m for 9MFY20 (vs. SPLY: PATMI RM204.6m); this compares to HLIB’s FY20 forecast of LATMI -RM82.0m and consensus LATMI -RM111.0m. We expect recovery in the group sales in view of implementation of SST exemption for passenger cars and PENJANA measures in 2HFY20. For 9M20, the exceptional items are largely due to net impairments of RM70.1m, consisting of loan moratorium.

QoQ. DRB reported lower core LATMI -RM5.6m in 3QFY20, a significant improvement from -RM283.9m in 2QFY20, mainly due overall rebound in group sales volume, following easing of country lockdown measures and implementation of SST exemptions and government stimulus plans.

YoY & YTD. Results turned to LATMI -RM5.6m in 3QFY20 (vs. PATMI RM34.1m SPLY) and -RM357.4m in 9MFY20 (vs. PATMI RM204.6m SPLY), mainly affected by Covid19 and implementation of MCO on the group wide businesses, and coupled with the disposal of Alam Flora effective Dec 2019.

Automotive. The segment is expected to show stronger rebound in 4QFY20, driven by high automotive demand prior the end of SST exemptions by 31 Dec 2020 as well as new model launches during the quarter i.e. Proton X50 (received over 27k bookings), Honda City (received over 9k bookings) and Mitsubishi Xpander. However, Deftech and CTRM may remain affected by the government’s constraint in defence budget and global aviation crisis.

Services. Pos Malaysia continued to show improvement with almost break-even in 3QFY20 and is expected to turnaround in 4QFY20, driven by increasing courier volume and higher postal rate while its logistics will leverage on the uptick in automotive demand. Bank Muamalat is implementing various cost cutting measures and expanding its services and revenue to cushion the impact from Covid-19.

Property. Affected by implementation of MCO and restricted labour movements. Nevertheless, results are likely to be supported by the commencement of concession earnings for Bukit Kayu Hitam ICQS and Media City.

Forecast. We have adjusted our forecast lower for FY20 to LATMI -249.7m (from - RM82.1m), FY21 to PATMI RM308.0m (from RM422.4m) and FY22 to PATMI RM581.2m (from RM603.3m).

Maintain BUY, TP: RM2.45. We retain our BUY recommendation with lower TP: RM2.45 (from RM2.52) based on unchanged 25% discount to SOP: RM3.27. 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 a strong leverage onto the robust growth momentum of Proton within the next few years.

Source: Hong Leong Investment Bank Research - 27 Nov 2020