DRB reported a disappointing core PATMI RM0.1m for 4QFY22, dragged by lower group automotive sales volume and margin. Nevertheless, FY22 was still a turnaround to PATMI RM254.3m (from LATMI -RM89.2m inFY21). We expect DRB to continue leverage onto the strong Automotive segment (especially Proton) in FY23. We remain confident of Proton’s outlook with its attractive new model line-up and Geely’s support in the coming years. We maintain BUY on DRB with an unchanged TP: RM2.24, based on 20% discount to SOP: RM2.80.

Below expectations. DRB reported a disappointing core PATMI of RM0.1m for 4QFY22 (vs. RM156.9m in 3QFY22; RM227.4m in 4QFY21), while registering PATMI of RM254.3m for FY22 (vs LATMI -RM89.2m in FY21). We deem the results below our/consensus expectations at 68.3%/90.7%, due to lower than expected sales and margins from Automotive segment and contributions from JV/associates. EIs of -RM66.6m was adjusted for FY22, attributed to -RM167.2m impairments and -RM27.6m unrealised forex loss, partially negated by RM119.5m gain recognition in relation to the disposal of a former subsidiary Lotus.

Dividend. None. Usually dividend of 2 sen/share is announced pending AGM in Apr/May.

QoQ/YoY. Core PATMI disappointed to a mere RM0.1m in 4QFY22 (vs. RM156.9m in 3QFY22; RM227.4m in 4QFY21), mainly dragged by lower sales volume (see Figure #4) and deteriorated margins for Automotive segment (affected by supply chain issue and higher input costs) and lower contribution from Bank Muamalat (higher dividend paid for fix term account in line with the OPR hike), which was partially offset by the improving Aerospace and Defence segment (on increasing demand and higher deliveries)

YTD. Turnaround YoY to RM254.3m in FY22 (vs. FY21: -RM89.2m), mainly boosted by the full reopening of economy since April 2022 and SST exemption policy, resulting to: (i) improved sales volume of Automotive segment; (ii) turnaround of Aerospace and Defence segment; (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 supply chain issue normalizes, leveraging onto Proton, Honda, Isuzu and Mitsubishi in 2023. Proton is anticipated to introduce 2 new attractive models and Honda with 3 models in FY23. The increasing industry production volume also bodes well with the group’s automotive supply chain. We expect Proton to step up pace on its export program in 2023 to Africa, South Asia and Southeast Asia region.

Aerospace & Defence. CTRM is expected to continue ramping up production, leveraging on the increasing global demand for air travel as more countries reopen their borders and remove travel restrictions.

Services. Bank Muamalat will continue to benefit from the recovery of the economy and the increasing interest rate environment. However, Pos’ sustainability remains a concern as the segment faces volume decline and competing insourced services.

Forecast. Unchanged.

Maintain BUY, TP: RM2.24. Maintain BUY with an unchanged TP: RM2.24, based on a 20% discount to SOP: RM2.80. We remain positive on DRB’s outlook on strong Automotive segment especially on Proton’s growth over the longer term.

Source: Hong Leong Investment Bank Research - 22 Feb 2023