1QFY21 reported significantly lower core losses of RM17m compared to core losses of RM113m for 1QFY20, and compared to our/consensus core profit of RM266m/RM242m, respectively. We deemed the results as broadly within our expectation as we expect stronger recovery in 2HFY21 with the extended SST-exemption and after a series of MCOs in 1HFY21. 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. Maintain OP with Sum-of-Parts (SoP) derived-TP of RM2.20. Our TP implies a PER of 13x on FY22E EPS.

YoY, 1QFY21 reported significantly lower core losses of RM17m compared to core losses of RM113m for 1QFY20 with soaring sales (+28%) driven by the SST-exempted sales as well as turnaround in services segment, especially from Bank Muamalat. Automotive segment sales (+42%) were driven by upward momentum of: (i) Proton to 32,420 units (+49%) with top-selling models namely Proton Saga followed by the two SUVs, Proton X70 and the newer Proton X50, and (ii) Honda to 14,771 units (+33%) with its best-selling all-new Honda City. Services segment sales (+4%) from: (i) normalisation of Bank Muamalat activities with its Enhanced Targeted Payment Assistance (ETPA), and (ii) narrower losses for Pos Malaysia following an increase in parcel volume largely from contract customers, supported by stronger Logistics revenue from freight management business (especially from freight forwarding) and automotive business (largely from the local automotive production volume and commencement of a new warehouse). Nonetheless, Property sector (-25%) contribution is expected to see weaker growth with the completion of both Media City and Northern Gateway Infrastructure projects.

QoQ, 1QFY21 turned into the losses of RM17m compared to core profit of RM62m in 4QFY20 with lower sales (-28%) following the implementation of MCO 2.0 in January 2021 and partly due to the much higher demand towards the end of last year as consumers were rushing to purchase cars ahead of the anticipated end of the SST on 31 December 2020 (which was subsequently extended until 30 June 2021) with Proton (-7%) and Honda (-43%).

Outlook. Proton and Honda is expected to continue recording stronger growth post lockdown and with sufficient supply of inventory to counter the global chip shortage. 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 in Oct 2020. Honda has launched the most popular all-new Honda City in Oct 2020. 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 “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 RM2.20. Our TP implies a PER of 13x on FY22E EPS.

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

Source: Kenanga Research - 1 Jun 2021