DRB-Hicom - Strong Start

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+0.67 (46.85%)

DRB-Hicom (DRB) reported a net profit of RM107.9m for 1QFY23 compared to net loss of RM25.7m in the same quarter last year. The results beat ours and consensus expectations, accounting for 35.6% and 32.2% of full year estimates,  respectively. The discrepancy was largely due to better-than-expected performance of its Automotive and Services sector. We keep our estimates unchanged however, on expectations of total industry volume (TIV) normalising post-expiry of the Sales and Service Tax (SST) holiday and the rising interest rate environment. We continue to like the Group’s prospects however,  underpinned by its transformation initiatives. We retain our Outperform call on  DRB with unchanged sum-of-parts (SOP) based TP of RM2.10.

  • Revenue increased by 33.7% YoY to RM4.1bn in 1QFY23. The strong results were mainly driven by the Group’s Automotive Sector which recorded a 46.3% increase in revenue on improved market share and vehicle sales from all marques within the Group. PROTON sold 40,287 units in 1QFY23  compared to 26,706 units in the corresponding period in FY2022 driven by  PROTON’s key models, including Persona, Saga and X50. The Banking  Sector recorded a 33.1% increase in revenue due to higher financing income attributed to expanding customer base and rise in the Overnight Policy Rate  (OPR). Revenue for Service Sector also increased by 10.6% driven by the in-flight catering business and new contracts secured by the logistic business. The Aerospace and Defence (A&D) Sector also recorded higher revenue of 5.2% YoY mainly due to higher delivery of aircraft parts.  However, this was somewhat offset by lower revenue from the Postal (-9.2%  YoY) and Property (-25.8% YoY) businesses.
  • Net profit of RM107.9m was recorded in 1QFY23 compared to net loss of  RM25.7m in 1QFY22. The strong results for the current quarter were mainly driven by higher profits from the Automotive and Service sector in line with the higher revenue. However, this was partly offset by losses from the Postal  Sector due to decline in the courier business as overall parcel volume decreased, especially from the contract customers. 
  • Outlook. 1Q 2023 TIV surged 20% YoY to 192,500 on the back of high order  backlogs as the Ministry of Finance (MOF) extended the vehicle registration deadline to 31 March 2023 to enable car buyers who booked their vehicles by 30 June 2022 to still enjoy the sales tax (SST) exemption. Post-SST exemption, April 2023 TIV was down 41% MoM to 46,600 units compared to  March 2023 TIV that saw an industry all-time high of 78,800 units as it was the final month for car companies to fulfil bookings made during the SST  exemption period. TIV is expected to normalise moving forward. The  Malaysian Automotive Association (MAA) is projecting a TIV of 650,000 in  2023F (-9.7% YoY) considering the expiry of SST holiday, and rising interest rates to dampen consumer confidence. On a positive note, the auto chip shortage continues to abate, with encouraging signs that sales orders remain healthy, underpinned by new model launches in 2023. PROTON has  recently launched its Proton X90 family SUV and targets to launch its first  EV under the Smart brand in Malaysia with the new model, smart #1 in the 4Q this year

Source: PublicInvest Research - 29 May 2023

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