DRB reported PATMI of RM31.5m for 1QFY21, which was below expectations (9.0% of HLIB and 12.5% of consensus) due to lower car inventory level during the start of the year and continued losses of PosM. We are not overly concern on the recent strict lockdown measures, as the SST exemption for automotive sector has been extended up to 31 Dec 2021. We expect continued earnings growth in FY21-23, leveraging on the strong sales of the group’s automotive segment. We maintain BUY with adjusted TP: RM2.78 (from RM2.77), based on 20% discount to SOP: RM3.47.

Below expectations. DRB reported core PATMI RM31.5m for 1QFY21 (vs. 4QFY20: PATMI RM65.2m; and 1QFY20: LATMI –RM67.9m). We deem the result below HLIB’s FY21 expectation of RM348.7m (9.0%) and consensus RM263.2m (12.5%), mainly due inventory shortage at starting of 2021 (accelerated productions by end 2020 and disappointing performance of PosM during the quarter). EIs for the quarter mainly include unrealised forex loss of -RM48.8m.

Dividend: Announced final dividend of 2 sen/share for FY20 (ex-Date: 29 Jun 2021).

QoQ. Core PATMI RM31.5m in 1QFY21 dropped from RM65.2m in 4QFY20, in line with lower automotive sales volume QoQ. The automotive segment pushed for car deliveries by end 2020 (prior to an initially anticipated ending SST exemption by Dec 2020), resulting lower inventory level for deliveries in 1QFY21, which was partially offset by stronger contribution from service segment.

YoY. Core PATMI stood at RM31.5m in 1QFY21, a turnaround from LATMI - RM67.9m in 1QFY20, mainly boosted by strong sales performance of Proton (subsidiary), Honda (associate), and Mitsubishi (JV), driven by SST exemption, while SLPY was affected by strict MCO1.0 by end of 1QFY20.

Automotive. Despite recent implementation of strict lockdown that will affect the automotive segment, we expect the segment to benefit from the government extending the SST exemption measures up to 31 Dec 2021 (from current Jun 2021). However, Deftech and CTRM may remain affected by the government’s constrain in defence budget and global aviation slowdown. The vaccination program and stimulus plans are expected to boost consumer sentiment towards 2HFY21.

Services. Pos’s on-going transformation may take longer than anticipated to show material improvements as the unit continued to disappoint in 1QFY21 despite the guided leverage onto the booming e-commerce sector. Bank Muamalat is expected to improve in 2021 in line with the anticipated recovery of the economy.

Property. The segment will continue to sustain under MCO, given its concession income for Northern Gateway ICQS and Media City. The group will continue to monetize its huge landbank over the longer term, depending on market demand.

Forecast. Cut earnings for FY21 and FY22 by 31.1% and 12.4%, as we assumed a lower contribution from PosM and associates/JVs. We expect earnings momentum to continue into FY23 with RM706.8m.

Maintain BUY, TP: RM2.78. Maintain BUY with adjusted TP: RM2.78 (from RM2.77) after rolling forward out valuation into FY22, based on lower 20% discount (from 25%) to SOP: RM3.47. 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 - 1 Jun 2021