FY19 (due to change in FYE from Mar to Dec) core PATAMI of RM165m compared to core losses of RM9m in FY18 came in within our expectation at 95%, but above consensus at 164%, of full-year estimate. No changes to our FY20E CNP. Maintain OUTPERFORM with a higher SoP-derived TP of RM2.80 (from RM2.60) with our in-house corresponding upgrade of POS Malaysia’s TP to RM1.95 from RM1.25.

FY19 (due to change in FYE from Mar to Dec) core PATAMI of RM165m compared to core losses of RM9m in FY18 came in within our expectation at 95%, but above consensus at 164%, of full-year estimate. No dividend was declared, but we expect effective DPS of 3.0 sen to be declared later which is typically before the release of its audited annual report. Note that, the FY19 CNP exclude: (i) impairment loss on goodwill of RM318.2m in certain subsidiary companies, and (ii) gain on disposal 97.37%-owned Alam Flora Sdn. Bhd amounting to RM514.6m.

YoY, FY19 recorded core PATAMI of RM165m compared to core losses of RM9m in FY18 mainly from stronger Proton sales of 81,902 units (+58%) which drove Automotive segment stronger (sales +33%, segment profit of RM342m from segment losses of RM208m), and more than offset lower overall profit contribution from Services segment, Pos Malaysia, and Property segment (-60%), and lower share of profits from associates’ (-38%), namely Honda, which recorded lower sales at 63,228 units (-19%), as consumers held back purchases in anticipation of newer models. Pos Malaysia’s FY19 CNL widened to RM93m compared to CNL of RM25m in FY18 due to: (i) continuous structural decline in traditional mail volume largely on electronic substitution, (ii) higher losses at International which we believe was partly due to lower utilisation rate, and (iii) lower contribution at Logistics due to completion of a project. There was also a de-consolidation of Alam Flora Sdn. Bhd.’s results as of 30 November 2019 under the services sector.

QoQ, 3QFY19 core PATAMI decreased by 8%, with weaker overall sales (-3%), and affected by lower profit contributions from Automotive segment (-3%), Services segment (<100%), Associates’ share of profit (- 93%), and Property sector (<100%). The Automotive segment registered dismal profit with lower overall revenue (-2%) despite Proton recording better unit sales (+15%) mainly from unfavourable vehicles mix (Proton vehicles-mix was skewed towards lower-margin lower-price-tag vehicles). Whereas, Associates’ lower share of profit, namely Honda, recorded lower unit sales (-3%), while Services segment’s lower contribution came from Pos Malaysia’s as it 3QFY19 CNL widened to RM48.6m from RM29.3m in 2QFY19 due to enlarged losses from mail segment as a result of declining mail volumes.

Outlook. Proton is in the midst of realising a 10-year business road map targeting 30% share of the domestic market and 10% of regional market via introduction of new models. Proton X70 CBU was rolled out on 12th December 2018, and the CKD version (RM4k-5k cheaper than CBU) was rolled out on 12th February 2020, in between the launching of face-lifted existing models’ variants. For 2H20, Proton will launch Proton X50 (Geely Binyue). Proton recorded higher CY19 sales at 100,183 units (+56%) and targeting stronger 2020 at 132k units (+32%), while Honda continued to record weak sales at 85,418 units (-17%) due to stiff competition with local carmakers.

Maintain OUTPERFORM with a higher Sum-of-Parts (SoP) derivedTP of RM2.80 (from RM2.60) with the corresponding upgrade of our inhouse upgrade of POS Malaysia’s TP to RM1.95 from RM1.25. Our TP implied PER of 18x.

Key risks to our call are: (i) slower-than-expected roll-out of new models under the new Geely-Proton management, and (ii) lower-than-expected associates’ contribution

Source: Kenanga Research - 2 Mar 2020