DRBHCOM’s 9MFY23 results met expectations. Its 9MFY23 core net profit rose 5% YoY driven by strong Proton vehicles sales and better distribution margins from new models, coupled with an improved performance from Bank Muamalat. These more than offset weaker earnings from Honda Malaysia. We maintain our forecasts, TP of RM1.45 and MARKET PERFORM call.

DRBHCOM’s 9MFY23 results met expectations at 75% of both our fullyear forecast and the full-year consensus estimate.

YoY, its 9MFY23 revenue rose 8% YoY driven by: (i) automotive sales (+9%) led by Proton at 114,806 units (+17%), Mitsubishi at 16,521 units (-12%), and Isuzu at 12,572 units (+6%), (ii) services segment (+12%), and (iii) higher financing income from Bank Muamalat (+37%). These more than offset the weakening sales from: (i) aerospace & defence (- 13%) due to lower delivery of defence products despite improving aviation sector, and (ii) postal (-15%) due to deteriorating operating environment.

However, its net profit only rose 5% on reduced share of associates’ profit (-11%) from 34%-owned Honda Malaysia due to a weaker sales volume (-10% to 54,017 units).

QoQ, its 3QFY23 revenue was flattish as stronger contribution from: (i) aerospace & defence (+10%) from improving aviation sector, (ii) higher financing income from Bank Muamalat (+6%), and (iii) services segment (+2%), negated the (i) flattish automotive sales due to aggressive promotion by the competitors, and (ii) weak postal segment (- 1%). Its net profit soared by a larger 95% driven by: (i) improved overall distribution margins underpinned by high-margin new models, i.e. X50, X90 and Honda City, (ii) a slight jump in share of associates’ profits (+2%) driven by 34%-owned Honda Malaysia on improving sales volume (+25% to 20,290 units), and (iii) a strong showing from Bank Muamalat.

Forecasts. Maintained.

We also keep our Sum-of-Parts (SoP)-derived TP at RM1.45 (see Page 3). There is no adjustment to our TP based on ESG given a 3-star rating as appraised by us (see Page 5).

We like DRBHCOM for: (i) being the second largest player in the local automotive sector, second only to Perodua, with a market share of about 30%, (ii) its strong Proton and Honda franchises, and (iii) its improving banking franchise under Bank Muamalat. However, its outlook has weakened with rival Perodua turning up the heat with aggressive new launches. Maintain MARKET PERFORM.

Risks to our call include: (i) consumers cutting back on discretionary spending (particularly big-ticket items like new cars) amidst high inflation, (ii) persistent disruptions (including chip shortages) in the global automotive supply chain, (iii) a slowdown in capital market activities (Bank Muamalat), and (iv) a global recession hurting the demand for transport and aviation services.

Source: Kenanga Research - 24 Nov 2023