Pandemic puts brakes on DRB-Hicom’s momentum


  • Auto
  • Monday, 30 Mar 2020

Big demand: Proton’s February sales were bolstered by high demand for its existing models, including its newly launched completely-knocked-down X70.

PETALING JAYA: Just when things were starting to look up for DRB-Hicom Bhd, the automotive conglomerate, like many car companies around the globe, is seeing its business being dampened by the Covid-19 pandemic.

While the sales of most car companies were in negative territory for the month of February, DRB-Hicom subsidiary Proton posted an 89% year-on-year jump in sales last month.

“Proton continued its growth momentum with sales volume of 10,000 units in February, due to sustaining high demand for its existing line-up of models such as the Persona, Iriz, Saga and Exora, as well as the newly launched completely-knocked-down (CKD) X70, ” said Hong Leong Investment Bank (HLIB) Research in a report earlier last week.

The research house noted that the marque achieved its highest ever market share of 24.7% since its restructuring exercise in 2017.

“Management is targeting 130,000 unit sales in 2020. Upcoming new line-up launch is the highly anticipated X50 CKD in the second half of 2020, ” said HLIB Research.

However, with the Covid-19 outbreak and movement control order (MCO) in place, can Proton sustain that sales target for this year?

For now, an analyst said, earnings for DRB-Hicom should not be too badly affected, given the fact that it has recorded two good months of strong sales.

“Year-to-date February, Proton sold 18,480 units, which is a 52% year-on-year jump. While we think that sales in March will be severely dampened by the MCO, we feel that stellar sales for the first two months of the current quarter should be enough to buffer the impact, ” he said.

The MCO, which was originally scheduled to end on March 31, had been extended to April 14 to combat the Covid-19 pandemic.

Earlier this month, several car companies announced that they would be temporarily suspending their operations, in compliance with the MRO.

Proton announced that production activities at its Tanjung Malim and Shah Alam plants will cease in unison as it systematically shuts down all its operations in an effort to help with the control of the spread of the Covid-19 pandemic.

“Therefore starting March 18, all customer-facing activities such as sales and after sales will cease as all Proton outlets will be temporarily shut, ” it said.

But how badly will the MCO affect business for DRB-Hicom?

For now, it will depend on several factors, namely the duration of the MCO; how long the Covid-19 pandemic will drag out; and if economic conditions will subsequently improve, said an analyst.

“It depends on whether the MCO will be lifted by mid-April. If it is lifted, production can then resume and there will also be plenty of pent-up demand during the period when businesses were shut down.

“The Hari Raya festive season in May would also help to spur sales, so things should look good for the company going into the second quarter of the year. However, if the MCO were to be extended, say the whole of April, we do expect sales to be affected.”

On the assumption that the MCO is lifted by mid-April and things go back to normal, there are also the economic uncertainties that have risen not just locally, but also on the global level due to the Covid-19 pandemic.

“Even if things were to improve on the local front, there is still plenty of global economic uncertainty.

“There are also concerns that Malaysia’s economy will contract and that will have an impact on sentiment, purchasing power and of course, car sales, ” said one analyst.

Earlier this week, the Malaysian Institute of Economic Research (MIER) said the economic impact of the Covid-19 pandemic and the MCO is expected to shrink Malaysia’s real gross domestic product growth to -2.9% for 2020, relative to 2019.

MIER expected the recovery from this year’s projected economic recession due to the Covid-19 outbreak and implementation of the recommended stimulus package to result in a V-shaped recovery for 2021 to see a better economic performance.

Should there be an economic downturn in Malaysia, an analyst says vehicle sales in general will be severely affected.

“Cars are big-ticket items and should there be an economic downturn, vehicle sales will be dampened as most people will defer their purchases until things improve.

On a best case scenario, however, often, during a downturn, people will downgrade and choose cheaper, more fuel-efficient vehicles. In this case, we see the national makes, Proton and Perodua benefiting the most, given their models’ lower price points compared with foreign makes.

Similarly, AmInvestment Bank Research is optimistic that national car companies will perform better this year.

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