DRB reported core LATMI -RM171.1m for 3QFY21, which dragged 9MFY21 to LATMI -RM328.5m, within our expectation (but below consensus). The weak result was due to lower group sales following implementation of various lockdown measures. We expect DRB group to rebound strongly towards 4QFY21 as Malaysia transitions into phase 4 NRP. We maintain BUY with unchanged TP: RM2.30, based on 25% discount to SOP: RM3.06 as we expect DRB to leverage onto Proton’s growth momentum.

Within expectation. DRB reported core LATMI -RM171.1m for 3QFY21 (vs. 2QFY21: LATMI -RM188.8m; and 3QFY20: LATMI -RM6.8m), which further dragged 9MFY21 to core LATMI of -RM328.5m. We deem the results within HLIB’s FY21 expectation of LATMI -RM150.0m, but behind consensus -RM5.0m. We expect a strong recovery in 4QFY21 with the strong demand for automotive segment as witnessed in 4QFY20. EIs for 9MFY21 include unrealised forex loss of -RM65.2m and PPE & Intangible write off/impairments of -RM53.0m (mainly related to Pos in 2QFY21).

QoQ. Despite longer lockdown period during 3QFY21 affecting group sales revenue, core LATMI lowered to -RM171.1m (from -RM188.8m in 2QFY21) due to overall group cost cutting measures, resulting improved contributions from automotive and services segment (Muamalat and Pos). The operational improvements was partially offset by deteriorated property/infra segment (lower construction progress of Media City) and JV/associates contribution.

YoY. Core LATMI deteriorated to -RM171.1m (from -RM6.8m), due to implementation of strict lock-down measures during current quarter vis-à-vis gradual relaxation in SPLY.

YTD. Core LATMI improved slightly to -RM328.5m (vs. -RM358.6m in 9MFY21), mainly due to stronger JV/associates contribution, on higher car sales volume (Honda, Mitsubishi & Isuzu) during the period as compared to SPLY.

Automotive. With the extended SST exemptions to Jun 2022, we expect DRB to continue enjoying strong automotive sales volume, especially for its highly demanded Proton X50 model and upcoming new model launches by the group. We also expect Proton to again step up pace on its export program in 2022, after suffering setback since 2020. Proton’s CKD plant in Pakistan has already commenced operation recently.

Services. Pos has appointed a new management team recently to drive its transformation plan, after suffering from accelerated drop in conventional mail while unable to fully capitalise onto the booming e-commerce sector. Bank Muamalat is expected to improve from 4QFY21 onwards as Malaysia transition into Phase 4 of the National Recovery Plan.

Property. Media City construction is expected to regain its pace again in coming quarters. Contribution will be relatively stable 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. Unchanged.

Maintain BUY, TP: RM2.30. Maintain BUY with unchanged TP: RM2.30, based on unchanged 25% discount to SOP: RM3.06. 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.

Source: Hong Leong Investment Bank Research - 19 Nov 2021