DRB’s  recurring  earnings  disappointed  after  weaker  Proton  sales dragged down its core automotive business to incur an operating loss for  the  quarter.  The  interest  cost  to  fund  the  acquisition  of  Proton remains a major burden. It is making progress to dispose of non-core assets  although  finding  a  buyer  for  a  30%  stake  in  Bank  Muamalat  is proving to be elusive. Maintain BUY, with a FV of MYR3.20.

• Weaker  Proton  sales  drag  DRB’s  earnings.  DRB-HICOM’s  (DRB) 3QFY14  earnings  disappointed.  Its  reported  net  profit  of  MYR141.6m, while  sequentially  flat,  was  boosted  by  negative  goodwill  credit amounting  to  MYR111.7m  arising  from  the  acquisition  of  Composites Technology  (CTRM)  last  November,  while  its  adjusted  cumulative  net profit of MYR178.2m reached  only 65% and 51% of our and consensus estimates  respectively.  Weak  core  earnings  from  its  automotive  unit were  the  main  reason  for  the  poor  financial  performance.   A  single-tier interim DPS of 1.5 sen (3QFY13: 1.5 sen less tax) was declared.
• Proton sales slump.  Proton sales for the quarter slumped 9.5% y-o-y and 29% q-o-q to 30,711 units despite recently introducing a value-formoney variant of the Persona. The core automotive segment reported an operating  loss  of  MYR75.1m  for  the  quarter  after  making  respectable progress  in the last three preceding quarters . A strong showing from the services  division  (mainly  from  the  concession  businesses)  helped  to offset  the  shortfall  from  the  automotive  unit.  DRB’s  property  unit remained in positive territory, although its  cumulative operating profit of MYR8.9m  was  not  significant.  Its  subsidiary,  KL  Airport  Services  SB,completed the acquisition of a  61.6% stake in Konsortium Logistik  (KLB MK,  NR)  in  3QFY14,  and  is  taking  steps  to  compulsorily  acquire  the latter’s  remaining  shares.  The  sale  of  Uni.Asia  Life  was  completed  in January. Meanwhile, Bank Negara is considering DRB’s  proposal to sell its stake in Uni.Asia General Insurance for MYR374.5m.
• Maintain BUY. All eyes will be on Proton’s plan to launch its global small car by mid-2014.  The market success of this model is key if Proton is to reverse  its  recent  slump.  We  lift  our  reported  net  profit  estimate  by 15.5% after factoring in the exceptional gain, but lower FY15 numbers by 21.5%. We trim our SOP-derived FV to MYR3.20 (from MYR3.40) after updating our valuation assumptions. DRB remains attractive for its deepvalue assets and prospects of a turnaround at Proton. BUY.

Financial Exhibits

SWOT Analysis

Company Profile

DRB-HICOM is a conglomerate with three core business divisions in automotive, property and services.

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Source: RHB