DRB-Hicom’s Proton push


  • Business
  • Thursday, 20 Feb 2020

More sales: Proton is projecting a 30% sales volume growth in FY20 driven by new launches, growing export sales and dealership expansion, says CGS-CIMB.

PETALING JAYA: DRB-HICOM BHD stands to benefit from subsidiary Proton Holdings Bhd’s forecast earnings growth in financial year 2020 (FY20) and potential Shah Alam land monetisation following its relocation, CGS-CIMB Equities Research says.

In its research note yesterday, it said it expects a 15% rise in 53.5%-owned Pos Malaysia Bhd’s revenue in forecast FY20 after the recent postage rates revision, which should help boost its services division’s profitability. “We reiterate an ‘add’ call with a higher RM3.10 sum-of-parts (SOP) based target price to reflect Proton and Pos Malaysia’s earnings recovery and exclude the contribution from Alam Flora,” said the research unit.

CGS-CIMB Research said DRB-HICOM’s 50.1%-owned subsidiary Proton is projecting a 30% sales volume growth in forecast FY20, driven by new launches, growing export sales and expansion of its dealer and 3S and 4S service centre network to 150 outlets.

“We like the group’s strategy of expanding to the Indonesian and Thai markets due to its relatively lower motorisation rate within South-East Asia, amidst stiff competition from the Japanese marques. We estimate Proton will make up between 34% and 38% of DRB-Hicom’s net profit in forecast FY20-FY21,” it said.As for Pos Malaysia, it said the postage rate revision on Feb 1 should help boost its mail division’s profitability, which has been affected by a lower mail volume and higher operating costs.

While the mail volume should continue to decline, the research house estimates that Pos Malaysia could capture an additional RM270mil to RM288mil annual revenue, or a 15% revenue contribution, in forecast FY20-FY21 from the recent postage rate hike.

“We believe this will help turn around Pos Malaysia’s profitability in forecast FY20 and contribute 9% to DRB-Hicom’s net profit. We still like Pos Malaysia as a proxy to the e-commerce growth in Malaysia,” it said.

CGS-CIMB Research also pointed out that Statista’s Digital Market Outlook projects Malaysia’s e-commerce revenue to grow at an 8.4% compounded annual growth rate in forecast FY20-FY24.

It also highlighted that DRB-Hicom’s landbank assets had massive monetisation potential. DRB-Hicom stands to gain up to RM984mil or 51 sen a share from the potential landbank and hospitality portfolio asset disposals, which have been delayed for almost a year.

“We believe the group could also benefit from the potential redevelopment of the Shah Alam land following Proton’s relocation plan to Tanjung Malim by forecast FY22-FY23, which coincides with the end-of-life for the production of the existing models at the Shah Alam plant by forecast FY21-FY22,” it said.

According to recent property transaction data in the vicinity, it is estimated that the Shah Alam land could be worth at least 2.5 times the current net book value of RM443mil as at FY19.

“We resume coverage on DRB-Hicom following the completion of the Alam Flora divestment in December 2019, with a higher RM3.10 SOP-based target price. We adjust our earnings forecast to reflect the change in the group’s financial year-end from March to December. We see a higher-than-expected volume growth at Proton, an earnings turnaround at Pos Malaysia and a potential gain from landbank and hospitality asset disposals in forecast FY20 as potential rerating catalysts for the stock.”

“Widening losses at Pos Malaysia, lower volume delivery at Proton and supply-chain disruption from the Covid-19 outbreak are potential downside risks,” CGS-CIMB Research said.
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