FY21 results reported lower core losses of RM210m compared to core losses of RM284m in FY20, and our/consensus core fullyear core loss of RM410m/RM233m, respectively. We deemed the results as above our expectation on stronger-than-expected recovery in 4QFY21 post lockdown in its Automotive segment. Proton ended the year with 111,695 units (+3%) sold, highest since 2014 and is striving for stronger volume in 2022 at 150,000 units (+34%). Automotive will continue to be the driving force of the group realising a better market share with slew of new launches ahead. Maintain OP with SoP-derived TP of RM1.80.

YoY, its FY21 results reported lower core losses of RM210m compared to core losses of RM284m in FY20 as 4QFY21 recovered strongly from the closure of the automotive sector during the pandemic lockdown in 3QFY21 despite weaker overall sales (-6%) from favourable merchandise mix toward high-margin SUVs. Automotive segment sales (+10%) were boosted by Proton to 111,695 units (+3%) with top-selling models of Proton X70 and the newer Proton X50 (40% of total sales) and supported by Honda of 53,031 units (-11%) 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 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 (-85%) contribution is expected to see weaker growth with the completion of both Media City and Northern Gateway Infrastructure projects.

QoQ, 4QFY21 turned to black with strong core profit of RM199m compared to core loss of RM177m in 3QFY21 boosted by stronger volume from both Proton at 40,045 units (+276%) and Honda at 21,987 units (+156%), both recovering strongly from lockdown induced quarter in 3QFY21.

Outlook. DRB-HICOM's Automotive segment remains a driving force for the group’s growth. Proton and Honda are expected to chart a stronger volume in 2022 with Proton striving for a target of 150,000 units (+34%) in 2022. The positive momentum is expected to continue with the extension of sales tax exemption for passenger vehicles until 30 June 2022 and new launches ahead to fortify the group market share position. As the global economy gradually reopens further, aerospace and defence business are expected to gear up their production whilst staying flexible in meeting ever-changing customers’ demands. For the postal segment, the on-going turnaround plan focusing primarily on rigorous cost efficiency and customer centric strategy is expected to improve its overall performance. Other businesses in banking, services and properties will continue to operate efficiently by optimising cost management and improving business productivity.

Maintain OUTPERFORM with Sum-of-Parts (SoP) derived-TP of RM1.80. Proton and Honda will continue to be the driving force of the group realising a better market share with slew of new launches ahead to fortify its position. The group typically declared dividend during audited annual report announcement.

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 2022