KUALA LUMPUR: RHB Research Institute is maintaining its Buy call on DRB-Hicom with a higher target price of RM3.35 from RM3.05,14% upside plus 0.3% yield.
It said on Monday DRB-Hicom’s results in the quarter ended June 30,2019 met expectations as the group remained profitable.
“Improvements in the automotive division from stronger Proton-derived revenues lifted DRB-Hicom’s earnings and offset a weaker performance of its other segments; we remain positive on DRB’s long term prospects, ” it said.
The research house said the introduction of the next Geely-based model could be a catalyst.
DRB recording core earnings of RM12.6mil as the group remained profitable for the second consecutive quarter, showing sustainability of its earnings.
The stronger YoY earnings amount was due to significant improvements in the automotive division’s operating profit.
The sequential drop in earnings from RM107.7m during the previous quarter, was attributed to lower automotive earnings and a lower contribution from its property division.
The automotive division recorded an EBIT of RM90.8mil (vs a loss of RM188mil a year ago and RM249mil during the previous quarter).
RHB Research said a higher Proton sales volume (+6% YoY, +12.8% QoQ) contributed to sustainable earnings of the division. The sequentially lower earnings in the auto division were due to the timing of the AV-8 completion under Deftech, which was lumpy in nature.
However, the services and property segments weakened. PBT for services fell to RM26.6m (-52.9% YoY, -1.1% QoQ), dragged by Pos Malaysia’s contribution.
Sales for its property division declined due to a lower recognition from Media City Development project.
“We adjust our earnings forecasts to comply with the change in DRB’s financial year end from March 31 to Dec 31. The current audited financial statements will be for a period of nine months.
A weak consumer sentiment could pose a downside risk to earnings.
“We increase our sum-of-parts derived TP to RM3.35 from RM3.05, after rolling forward the book value of Proton and book value of other automotive associate and JV; we base the book value for Bank Muamalat and the property division on the FY19 (March) numbers and include the new TP for Pos Malaysia (TP: RM1.61).
“We also increased our previously understated earnings assumption of Deftech. We remain positive on DRB’s prospects to ride on the turnaround of Proton.
“Perceptions towards Proton have gradually improved, evidenced by a strong take up of its recently launched models. As of 7M19, Proton market share stands at 15%, vs 9.8% during the same period last year. Pipeline visibility of future Geely-based models would ensure sustainability of its earnings growth, ” it said.
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