DRB-Hicom swings into loss due to weaker automotive performance

DRB-Hicom says heavy year-end discounting and sales promotion were required in the automotive retail market to defend its market share. The photo shows the conglomerate's headquarters in Glenmarie, Shah Alam.

KUALA LUMPUR: DRB-Hicom Bhd sank into a loss attributable to its owners totalling RM185.32mil for the third quarter (Q3) ended Dec 31, 2015, compared to earnings of RM9.47mil a year earlier, as its automotive operations faced various headwinds.

The conglomerate, whose stable of brands include Proton and Pos Malaysia, said the “unfavourable” financial results for the quarter and financial period was mainly caused by the weaker performance of its automotive business.

“This was due to stiff market competition, expenses related to aggressive promotion and sales campaigns as well as weak consumer sentiments,” it told Bursa Malaysia on Thursday.

In an accompanying press statement, DRB-Hicom noted that the automotive retail market required heavy year-end discounting and sales promotion to defend its market share.

DRB-Hicom’s revenue fell 5.5% to RM3.34bil for the quarter under review.

For the first nine months of the financial year, the group swung to a loss of RM201.14mil from earnings of RM210.40mil in the preceding corresponding period while revenue fell 9.0% to RM9.45bil.

The automotive sector is the biggest revenue contributor for the conglomerate, which is also involved in the services sector and the property, asset and construction sector.

DRB-Hicom said for the first nine months ended Dec 31, 2015, the automotive segment’s revenue fell 9.3% to RM7.46bil. The automotive operations comprise over 30 companies and include the manufacture of brands such as Proton, Honda, Mercedes-Benz, Isuzu, Yamaha and Kriss (under Modenas). 

The group’s services sector saw its nine-month revenue dip 5.7% to RM1.89bil. This sector is represented by its logistic operations (including Pos Malaysia), concessionaire businesses (Alam Flora and Puspakom), Bank Muamalat and Hicom University College.

As for the property, asset and construction sector, its revenue dropped 23.1% to RM183.0mil. This sector covers projects such as Proton City in Perak and Glenmarie properties in Shah Alam, among others.

On its prospects, DRB-Hicom pointed out the Government’s recablirated 2016 Budget with a reduced gross domestic product outlook.

“The lower growth fears, volatility in the currency markets including the ringgit, coupled with tighter lending requirements and increasingly competitive business landscape have resulted in challenging business conditions for the group, especially in the automotive and property sectors,” it said.

The group will continue in its effort to improve its resilience through cost management and initiatives to further enhance operational efficiencies and effectiveness.

DRB-Hicom said it would also intensify its focus on integrated logistics services business to tap especially on the growth of the e-commerce business.

“In view of the above, the group’s performance for the fourth quarter ending March 31, 2016 will continue to remain challenging,” it concluded.

The conglomerate has managed to be profitable annually for the last four financial years, but in those years it was not weighed down by losses in the first nine months.

Malaysian Rating Corp Bhd (MARC) on Wednesday revised DRB-Hicom’s Islamic medium-term notes and perpetual sukuk musharakah programmes to negative from stable, citing the impact of the challenges in the domestic automotive industry on the group’s key automotive subsodiary, Proton Holdings Bhd.

MARC noted that the automotive division’s sustained performance was due mainly to its Honda range, while sales of the Proton marques had remained weak, falling 12.7% year-on-year in the first half-year.

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