1HFY21 core losses of RM185m were significantly lower than 1HFY20’s core losses of RM327m and our/consensus core profit of RM198m/RM165m, respectively. We deemed the results as below our expectation on larger-than-expected losses in both the Automotive and Services segments in 2QFY21. As such, we trim FY21E CNP to RM46m (-77%), but maintain FY22E CNP at RM337.0m (>100%) on post-pandemic recovery. With the re-opening of automotive sector especially in its main operating region of Klang Valley on 16thAugust 2021, we believe that there will be sales-boosting recovery on back-logged booking. Maintain OP with SoP derived-TP of RM2.20. Our TP implies a PER of 13x on FY22E EPS.

YoY, its 1HFY21 reported significantly lower core losses of RM185m compared to core losses of RM327m for 1HFY20 with soaring sales (+29%) driven by the SST-exempted sales. Automotive segment sales (+52%) were driven by upward momentum of: (i) Proton to 55,994 units (+51%) with top-selling models namely Proton Saga followed by the two SUVs, Proton X70 and the newer Proton X50, and (ii) Honda to 25,197 units (+45%) with its best-selling all-new Honda City, despite being impacted by lockdown in 2QFY21. Services segment sales (-3%) mostly were dragged by Pos Malaysia contribution due to larger-thanexpected losses following the decrease in mail (-20%) and parcel volume handled especially from contract customers affected by another lockdown (that started in June 2021), though cushioned by slight improvement from normalisation of Bank Muamalat. Property sector (- 28%) contribution is expected to see weaker growth with the completion of both Media City and Northern Gateway Infrastructure projects.

QoQ, 2QFY21 losses widened to RM168m compared to core loss of RM17m in 1QFY21 with lower sales (-25%) following the implementation of another lockdown starting June 2021. Both Proton and Honda reported lower sales at 23,574 units (-27%) and 10,426 units (-29%), respectively, with close to zero sales in June 2021.

Outlook. Proton and Honda are expected to continue recording stronger growth post lockdown 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. 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.

FY21E CNP trimmed to RM46m (-77%) with unchanged FY22E net profit of RM337.0m (>100%). For the immediate term, we expect the lockdown to continue weighing on services segments, while Automotive is set for stronger sales post-16th August 2021, while we maintain the FY22E net profit on post-pandemic recovery.

Maintain OP and Sum-of-Parts (SoP) derived-TP of RM2.20. Our TP implies a PER of 13x on FY22E EPS. With the re-opening of Automotive sector especially in its main operation region of Klang Valley in 16th August 2021, we believe there will be sales-boosting recovery on back-logged booking.

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

Source: Kenanga Research - 18 Aug 2021