DRB reported core PATMI RM111.2m for 2QFY22, turned around 1HFY22 to PATMI RM97.3m, above both HLIB’s expectation and consensus, attributed to higher group sales volume and margins. We remain confident of Proton’s outlook given its high backlog orders and attractive new model line -up in coming years. DRB will also leverage onto the strong demand for Honda and Mitsubishi marques and the recovery of Bank Muamalat and CTRM. We maintain BUY with a higher TP: RM2.06 (from RM2.00), based on 25% discount to SOP: RM2.75.

Above expectations. DRB reported core PATMI RM111.2m for 2QFY22 (vs. LATMI -RM13.9m in 1QFY22; LATMI -RM182.2m in 2QFY21), reversing 1HFY22 result to PATMI RM97.3m (vs -RM142.7m). We deem the results above our/consensus full year forecast at 69.1%/63.1%, mainly due to stronger than expected margins from Automotive segment and contributions from JV/associates. EIs of +RM46.5m was adjusted for 1HFY22, attributed to the gain recognition from the remaining 20% proceeds of RM119.5m in relation to the disposal of a former subsidiary Lotus, partially offset by the RM63.4m unrealised forex losses.

Dividend. None.

QoQ. Returned to core PATMI of RM111.2m (from LATMI -RM13.9m), mainly driven by the improved contribution of automotive segment on higher sales volume (see figure #3) as well as lower losses from postal operations on cost optimization initiatives.

YoY/YTD. Similarly, core PATMI improved to RM111.2m in 2QFY22 (vs YoY: -RM182.2m) and RM97.3m in 1HFY22 (vs. 1HFY21: -RM142.7m), on combinations of : (i) improved sales volume of automotive segment; (ii) lower losses from aerospace and defence; (iii) higher profits from Bank Muamalat; and (iv) lower losses from postal segment.

Automotive. DRB will continue to strengthen its automotive position in Malaysia as the group focuses on ramping up production to meet the high order backlogs. Management indicated bookings surge for Proton, Honda and Mitsubishi prior to ending of SST exemption on 30 Jun 2022. Moving forward, we also expect Proton to step up pace on its export program in 2022-23 to Africa, South Asia and Southeast Asia region. Proton has set a sales target of 136-150k units for 2022, while Honda’s sales target is at 80k units. Mitsubishi models have also been well accepted, overtaking Nissan as the 3rd largest Foreign OEM in Malaysia.

Aerospace & Defence. CTRM is expected to deliver more aerospace products following the increasing aircraft utilization and production as countries become more open on their borders movement policy. However, Deftech’s contribution may continue to slow as they reach the tail-end of its AV-8 delivery contract.

Services. Bank Muamalat is expected to benefit from the gradual recovery of the economy as well as increasing interest rate environment. However, we remain wary on Pos’ outlook as the sector faces volume decline and competing insourced services.

Forecast. Raised earnings for FY22 by 62.7%, but cut earnings for FY23 by -18.7% and FY24 by -8.1%, as we imputed higher sales volume in FY22 and lower sales in subsequent years.

Maintain BUY, TP: RM2.06. Maintain BUY with a higher TP: RM2.06 (from RM2.00), based on unchanged 25% discount to SOP: RM2.75. We remain positive on DRB’s outlook on strong automotive sales growth potential, leveraging on the attractive model line-up from Proton. DRB will also benefit from the increasing demand for Honda and Mitsubishi.

Source: Hong Leong Investment Bank Research - 26 Aug 2022