9MFY21 results reported significantly higher core losses of RM362m compared to core losses of RM255m for 9MFY20 and our/consensus core full-year profit/core loss of RM46m/RM5m, respectively. We deemed the results as below our expectation on continued losses in the Automotive segment from unfavourable sales mix. As such, we cut FY21E CNP of RM46m to core loss of RM407m (>100%) and FY22E CNP to RM193m (-43%). For the immediate term, we expect the global supply chain issues to continue affecting its high-margin models Proton X70 and X50, with waiting period reaching up to six months. Downgrade to MP from OP with a lower SoP-derived TP of RM1.80 (from RM2.20).

YoY, its 9MFY21 results reported significantly higher core losses of RM362m compared to core losses of RM255m for 9MFY20 mostly affected by the closure of the automotive sector during pandemic lockdown, but overall sales (-1%) was cushioned by the SST-exempted sales since last year. Automotive segment sales (+4%) were cushioned by early year momentum from: (i) Proton to 71,641 units (-3%) with top- selling models namely Proton Saga followed by the two SUVs, Proton X70 and the newer Proton X50, and (ii) Honda to 31,044 units (-10%) with its best-selling all-new Honda City. Services segment sales (-5%) mostly were dragged by Pos Malaysia’s contribution following the decrease in mail (-20%) and parcel volumes handled especially from contract customers affected by another lockdown (that started in June 2021), though cushioned by slight improvement from normalisation on Bank Muamalat. Property sector (-50%) contribution is expected to see weaker growth with the completion of both Media City and Northern Gateway Infrastructure projects.

QoQ, 3QFY21 losses widened to RM177m compared to core loss of RM168m in 2QFY21 with lower sales (-19%) following the implementation of another lockdown starting June 2021. Both Proton and Honda reported lower sales at 15,647 units (-34%) and 5,847 units

(-44%), respectively.

Outlook. Proton and Honda are expected to chart a better recovery post lockdown in tandem with resumption of economic activities and lifting of inter-state travels. During this sales tax exemption period (until June 2022), 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 of RM46m cut to core loss of RM407m (>100%) and FY22E net profit trimmed to RM193m (-43%). Our CNP cut premised on unfavourable sales mix toward lower margin models. For the immediate term, we expect the global supply chain issues to continue affecting its high-margin models of X70 and X50 with waiting period reaching up to six months.

Downgrade to MP from OP with a lower Sum-of-Parts (SoP) derived-TP of RM1.80 (from RM2.20). The cut in SoP is due mainly to unfavourable sales mix on proton side with subsequent lower profit valuation.

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

Source: Kenanga Research - 19 Nov 2021