DRBHCOM guided for flattish vehicle sales in FY24. It is riding on parent Zhejiang Geely group’s technology and eco-system for the transition to EV. It will put onto the market the all-new Proton e.MAS EV (CBU) using the Global Modular Architecture (GMA) platform by end-2024. We maintain our forecasts, TP of RM1.40 and MARKET PERFORM call.

We came away from DRBHCOM’s 1QFY24 results briefing yesterday feeling mixed about its near-term prospects. The key takeaways are as follows 1. DRBHCOM guided for sales of 160k unit (+3.4% YoY) of Proton vehicles and around 80k units of Honda vehicle (flattish YoY) in 2024. Meanwhile, it expects subdued sales for less popular brands such as Mitsubishi and Isuzu due to limited new model offerings.

We keep our assumptions of unit sales of 158k and 80k in FY24 and 166k and 80k in FY25 for Proton and Honda, respectively.

1. DRBHCOM guided for sales of 160k unit (+3.4% YoY) of Protonvehicles and around 80k units of Honda vehicle (flattish YoY) in2024. Meanwhile, it expects subdued sales for less popular brandssuch as Mitsubishi and Isuzu due to limited new model offerings.We keep our assumptions of unit sales of 158k and 80k in FY24and 166k and 80k in FY25 for Proton and Honda, respectively.

2. DRBHCOM is riding on parent Zhejiang Geely group’s technology and eco-system for the transition to EV. Proton will transition to EV in three phases, i.e. (i) Phase 1 in 2023-2027 (EV Pioneering), (ii) Phase 2 in 2025-2030 (EV growth), and (iii) Phase 3 in 2027-2030 (EV right-hand development hub).

3. Proton recently launched X50 RC, and will be launching X70- facelift soon. By end-2024, it will launch the all-new Proton e.MAS EV (CBU) using the GMA platform. It hopes to sell 200k units yearly built on the platform by 2030.

4. It plans to pare down its stake in Bank Muamalat to 40% (from 70%) by 2025 in accordance with Bank Negara guidelines. It hopes to turn around POS (UP; TP: RM0.33) over the next three years while its defence unit is poised to secure a new assembly contract for four-wheeler and six-wheeler armoured vehicles by 2025.

Forecasts. Maintained.

Valuations. We also maintain our Sum-of-Parts (SoP)-derived TP of RM1.40 (see Page 2). There is no adjustment to our TP based on ESG given a 3-star rating as appraised by us (see Page 5).

Investment case. 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, coupled with earnings drags from certain non-performing units. 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 - 14 Jun 2024