Period  1Q15

Actual vs. Expectations The core 1Q15 PATAMI of RM107m (+29% YoY) came in above expectations at 33% and 30% of our forecast and consensus full-year estimates. The variance from our forecast is mainly due to higher-than-expected contribution from Honda auto sales.

Dividends  No dividend was declared in this quarter.

Key Result Highlights YoY, 1Q15 revenue rose 22% to RM14b due to higher contribution from automotive and services divisions. Automotive revenue rose largely due to inclusion of Composites Technology Research SB (CTRM) and higher progress billings of AV8 project. Proton continued to disappoint with flattish sales of 30.3k units in 1Q15. Solid Honda sales (+119% y-o-y) boost associate contributions by 71% y-o-y which came in higher than our expectation. Elsewhere, the property division recorded lower billings and sales. The services segment revenue was boosted by 21%

thanks to contribution across the board. Specifically, revenue from concession businesses rose 42% y-o-y, while inclusion of Konsortium Logistic boosted revenue for KLAS. Bank Muamalat’s financing growth of just 4.4% was sub-par while Puspakom revenue rose in tandem with TIV growth of 1%.

 1Q15 core net profit came in at RM107m after two successive quarters of earnings disappointment.

Outlook  Earnings contributions from its RM7.55b AV8X8 contract will start from FY14 onwards while the property division is expected to contribute positively as the group plans to launch property development projects with a total GDV of RM13.3b in 2013-15. Assembly volumes for Volkswagen vehicles should also gather pace in FY14. Additionally, there are gains of RM89m from the Johor lands disposal; expected to be reflected in subsequent quarters. However, contribution from services segment could shrink after the sale of Hicom Power.

Change to Forecasts We are upgrading our FY15E-FY16E net profit by 5%-10% to take into account of the higher-thanexpected results at associate Honda.

Rating & Valuation  We are keeping our SoP derived target price of RM2.49. The stock offers a total upside of 17.8% at current price. Correspondingly, we upgrade our recommendation from Market Perform to Outperform. We believe it could be time to take a second look at DRB-Hicom as its share price is down 24% YTD, at least from a trading perspective. Near-term catalyst is the launching of the Global Small Car expected in 2H14.

Risks to Our Call Weaker consumer sentiment.

Source: Kenanga