DRB reported a turnaround QoQ/YoY to core PATMI of RM65.2m for 4QFY20. However, FY20 remained in the red at -RM292.1m which is 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/credit loss. We expect continued earnings growth in FY21, leveraging on the strong sales of the group’s automotive segment - Proton, Honda and Mitsubishi. We maintain BUY recommendation on DRB with unchanged TP: RM2.77, based on unchanged 25% discount to SOP: RM3.69.

Below expectation. DRB reported a turnaround in 4QFY20 to PATMI RM65.2m (vs. 3QFY20: LATMI -RM5.6m; and SPLY: LATMI -RM9.7m). However, FY20 was still in the red of -RM292.1m (vs. SPLY: PATMI RM194.9m); vs. HLIB’s LATMI -RM237.8m and consensus LATMI -RM144.6m. The group was mainly dragged by the Covid-19 pandemic and the implementation of border closure and MCO measures during the year. During 4Q20, EIs include: (i) RM862.6m disposal gain post completion of property asset/land swap exercise with major shareholder Tan Sri Syed Mokthar; (ii) RM123.3m impairments on goodwill/intangibles by Pos (53.5% owned); and (iii) RM83.4m gain from 51% stake disposal of World Cargo Airlines by Pos.

YoY & QoQ. DRB reported core PATMI RM65.2m in 4QFY20, a turnaround from LATMI -RM5.6m in 3QFY20 and LATMI -RM9.7m SPLY, mainly boosted by strong year-end sales and higher margins from Automotive segment, namely Proton (subsidiary), Honda (associate) Isuzu (JV) and Mitsubishi (JV). However, there were drags from Services segment on higher financing/credit loss recognition for Bank Muamalat and temporarily shutdown of Pos parcel processing hub during the quarter and Property segment on slower recognition of Media City progress.

YTD. Results turned to LATMI -RM292.1m in FY20 (vs. PATMI RM194.9m 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. The segment will continue perform strongly in 2021, driven by the attractive new models launches (late 2020 and 2021) and the extended SST exemptions to 30 Jun 2021 (from 31 Dec 2020) as demonstrated in 4QFY20. However, Deftech and CTRM may remain affected by the government’s constrain in defence budget and global aviation crisis. The vaccination program and the ongoing stimulus plan are expected to boost consumer sentiments towards 2H21.

Services. Pos’s on-going transformation may take longer than anticipated to show material improvements as the unit continued to disappoint in 4QFY20 despite strong leverage onto the strong growth of e-commerce sector for the year. Bank Muamalat is expected to improve in 2021 in line with the anticipated recovery of the economy.

Property. Stripping out exceptional RM862.6m gain, this segment was barely breakeven in 4QFY20, affected by implementation of MCO. Nevertheless, results are likely to be supported by the commencement of concession earnings for Bukit Kayu Hitam ICQS and Media City.

Forecast. Unchanged.

Maintain BUY, TP: RM2.77. Maintain BUY recommendation with unchanged TP: RM2.77 based on unchanged 25% discount to SOP: RM3.69. We remain positive on DRB’s outlook on strong automotive sales growth, leveraging on SST exemptions and attractive model line-up from Proton, Honda and Mitsubishi. DRB also has a strong leverage onto the robust growth momentum of Proton over the next few years.

Source: Hong Leong Investment Bank Research - 25 Feb 2021