IDEAS economist Adli Amirullah said on Tuesday the future of automotive policy still remains uncertain.
KUALA LUMPUR: CIMB Equities Research has upgraded DRB-Hicom from Hold to Add with a higher target price of RM2.70 as it reduced the realised net asset value (RNAV) discount from 30% to 20% to reflect a stronger outlook for a turnaround at Proton.
The recent pullback on the stock offers a good opportunity for investors to accumulate, it said in its comments on the nine month results ended March 31, 2018.
“We see widening losses at Proton and weaker contribution from the services division as key downside risks to our call,” it said on Friday.
DRB-Hicom’s core net profit of RM59mil in 4QFY3/18 was mainly driven by lower loss recognition at Proton on the back of Geely’s entry as Proton’s foreign strategic partner (FSP) in September 2017.
The group incurred a total of RM70mil exceptional losses in 4QFY18, related to RM45mil impairment loss, RM42mil forex gain and RM73mil effect of Proton’s restructuring cost.
Revenue in FY3/18 grew 6.1% on-year to RM12.8bil due to higher contribution from the services division, driven by Pos Malaysia and Alam Flora and higher property sales.
The group’s EBITDA (earnings before interest, tax, depreciation and amortisation) also increased by 5.6% on-year, driven by higher revenue.
Despite the higher tax expense, DRB-Hicom posted a significantly lower core net loss of RM115mil in FY18, after stripping out the RM1.1bil R&D grant reimbursement, compared to RM506mil core net loss in FY17, mainly driven by lower loss recognition at Proton.
CIMB Research pointed out the services division revenue rose 27% on-year in FY18 due to higher contribution from logistics (+60%) following the consolidation of Pos Malaysia and concession (+8%), driven by Alam Flora.
“We expect stronger earnings delivery from the services division in FY19F, driven by processing capacity expansion at Pos Malaysia’s facility and riding on growing e-commerce activities.
“We expect the automotive division to benefit from the reduction in Goods and Service tax rate, which will reduce the average vehicle price for consumers. This could boost automotive volume growth in 3QCY18.
“Despite the weaker sales volume, we are encouraged that Proton is progressing well with its dealers’ network upgrade as the group prepares for the upcoming launch of its first SUV model in 4QCY18.
“We had earlier downgraded the stock to Hold post GE14 due to concerns over delays in Proton’s turnaround plan as a result of possible intervention by the new government. Following our downgrade, the stock fell by 19%.
“Meanwhile, the new prime minister clarified recently that the new government has no intention of privatising Proton, which indicates less risk of interference in Proton’s turnaround plan, in our view,” it said.
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