Post meeting with management, we remain positive on DRB’s outlook. Overall group performance in 3QFY21 was affected by the strict lockdown measures. Nevertheless, Proton has managed to register profit in Sep month alone and is expected to continue its recovery trend as the national OEM continues to ramp up production and improve deliveries in order to meet the current high order backlogs. PosM is currently undergoing restructuring exercise with full revamp of top management. New initiatives and digitalization plans have been identified and are being implemented, which managements target to breakeven by end 2022. We reiterate our BUY recommendation on DRB with unchanged TP: RM2.30 based on 25% discount to SOP: RM3.06.

Proton turnaround. In 3QFY21, Proton was severely affected by Jun-Aug’s strict lockdown measures. Nevertheless, management highlighted that Proton managed to return profit with 10.2k unit sales in Sep month alone. Management expects a recovery into 4QFY21 as Proton continues to ramp up productions to meet the high order backlog of 48.8k units (as of Oct). Proton has secured enough microchip supplies to meet the current demand. New model launches are expected to be postponed to FY22 due to the supply chain disruption and pandemic concerns. Management updated that the gradual shifting of Shah Alam production line to Tanjung Malim is under progress and expected to complete by 2026/2027. At the same time, Proton is also accelerating its export program, targeting 5k units in 2022 (900 units YTD). In relation to EV progress, management is waiting for the New NAP roadmap entailing EV initiative and targets, but views EV development is still at preliminary stage. Management does not expect Proton to be affected by the Prosperity Tax in FY22 as the OEM has enough unrecognised losses to offset the taxable income.

Other autos. Honda has been affected by the microchip shortage since earlier of the year, combined with on-going lockdowns and pandemic-related issues, resulting delay in new model launches. Honda is working towards normalising its production and new model introduction to regain its market share in 2022. On a brighter side, Mitsubishi’s Xpander has commanded stronger than expected demand. Management is exploring to potentially increase its CKD production volume.

Deftech/CTRM. Both Deftech and CTRM have been affected by Covid-19. The delivery of AV8 is being negotiated to further extend into 2022 (due to supply chain issue), while the group continues to engage with the government for replacement contracts. Despite CTRM’s production being affected, management guided the entity is still in the black. CTRM is expected to leverage on the recovery of global aviation sector in 2022.

Bank Muamalat. 70% owned Muamalat remain stable with good profit during pandemic period. Management has been prudent in cost management and is restructuring the business in view of the changing environment while margin has started to normalise from the previous OPR cuts.

PosM. 53.5% owned PosM continued to drag the group’s bottom-line with ongoing losses. There has been a revamp of top management in PosM in recent months. Various initiatives and digitalization efforts have been identified, which will improve its revenue and cut operational costs while improving customer service level. Management is targeting a breakeven by end of FY22.

Forecast. Unchanged.

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 - 25 Nov 2021