FY20 recorded core losses of RM193m compared to core profit of RM233m in FY19, within our full-year core losses estimate of RM164m and consensus core losses of RM145m. Both Proton and Honda continued to receive overwhelming responses for the all-new Proton X50 and all-new Honda City, respectively, while Pos Malaysia is on track to recovery in FY21. Maintain OP with Sum-of-Parts (SoP) derived-TP of RM2.50. Our TP implies a PER of 15x on FY21E EPS.

YoY, FY20 reported core losses of RM193m compared to core profit of RM233m for FY19. This was mainly due to lower overall sales (-6%) impacted by the COVID-19 pandemic and further worsened by the unfavourable forex movement, which caused the group to recognise forex losses on translation of payables and borrowings denominated in foreign currencies. Automotive segment sales (-6%) were affected by the business closure during MCO in 2QFY20 but had since recovered with Proton sales at 108,524 units (+55%) and Honda sales at 60,468 units (-40%). Services segment registered weaker sales (-18%) from: (i) Pos Malaysia’s aviation division which suffered losses from flight cancellations, but this was cushioned by the stronger e-commerce and online market place demand as well as (ii) weaker performance from banking segment (Bank Muamalat) due to, in our view, higher financing impairments. Revenue from property sector (+274%) was boosted by the completion of the disposals of property assets as part of the restructuring of DRB-HICOM’s property businesses which saw the group recognising a gain of RM862.6m and also marks DRB-HICOM’s exit from the hospitality industry. Note that our FY20 core losses exclude: (i) one-off property assets & investments disposal gain (RM945.95m), (ii) modification losses on financing moratorium (RM60.6m), (iii) impairment loss on PPE (RM76.6m), and (iv) other losses (RM62m).

QoQ, 4QFY20 recorded lower core PATAMI of RM62m (-14%) mainly due to weaker services segment (-4%) due to unexpected shutdown of Pos Malaysia’s main parcel processing centre in October and November 2020 affected by COVID-19 outbreak but this was cushioned by higher banking revenue (Bank Muamalat). This was despite higher sales (+36%) from stronger Automotive sales (+3%) on sales-exempted promotion and boosted by superior property sector sales (+1,199%) from the disposals of property assets. Proton and Honda recorded unit sales of 34,977 units (-4%) and 25,813 units (+47%), respectively, with Honda leading the growth through the superb sales of All-new Honda City which was launched in November 2020.

Outlook. During this sales tax exemption period, the group’s marques are expected to boost their sales performance by featuring new or revised models. To illustrate, Volkswagen has launched Arteon, Tiguan Allspace SUV and the Passat R-Line, Audi introduced the Q3 Sportback while Proton unveiled the Proton X50 (Geely Binyue) recently. Honda has launched the face-lifted BR-V and the all-new Honda City in 2HCY20. Despite the challenging environment, Pos Malaysia’s on-going transformation efforts will augment the improved tariff rates and growing demand for e-commerce. Other businesses in the group will continue to adapt to the so-called “new normal” environment to ensure financial sustainability, against the backdrop of changes in consumer behaviour.

Maintain OP and Sum-of-Parts (SoP) derived-TP of RM2.50. Our TP implies a PER of 15x on FY21E EPS.

Key risks to our call are: (i) lower-than-expected car sales volume, and (ii) lower-than-expected associates’ contribution.

Source: Kenanga Research - 25 Feb 2021