According to the Edge Weekly citing industry sources, DRB-Hicom (DRB)‟s
100%-owned indirect subsidiary Euromobil is set to lose its exclusive
distributorship of Audi cars in Malaysia. The news was not entirely
unexpected as market talks on Euromobil losing its exclusive
distributorship of Audi had surfaced a couple of years ago. In our
opinion, it is a matter of time that Audi AG will take back the
distributorship which is similar to what other global automakers (e.g.
BMW, Honda and Mercedes-Benz) have already done in Malaysia. Although
the news is negative for DRB, we believe the financial impact will be
minimal for the group due to the following: (i) Audi car sales are
expected to slow down significantly in 2014 (1H14 sales of 814 units,
-36.4% YoY) following the discontinuation of tax exemption for A6 Hybrid
which accounted for 1,907 units out of 3,102 Audi cars sold in 2013;
and (ii) we estimate Euromobil will contribute less than 3% of DRB‟s
FY15 (Mar) earnings, and it will be mitigated by Euromobil likely to be
appointed a master dealer of Audi cars. We would like to stress there is
no official announcement on the news, and we were unable to contact
DRB‟s management over the weekend to verify the news.
Euromobil and Audi car sales in Malaysia. Euromobil obtained the exclusive distributorship of Audi in February 2010, after previously being a key dealer for the marque. As the exclusive distributor, Euromobil did well in 2013 by more than doubling Audi car sales to 3,102 units (+119% YoY), driven by the huge success of A6 Hybrid which accounted for 1,907 units sold. However, following the discontinuation of tax exemption for A6 Hybrid in 2014, Audi car sales in Malaysia declined to 814 units (-36.4% YoY) for the first half of 2014. While Audi car sales may improve in later part of 2014 due to the introduction of A3 model, overall sales in 2014 will still be significantly lower than 2013. If Euromobil loses its exclusive distributorship of Audi, we believe there is a strong possibility of Euromobil of being appointed a master dealer (earning lower margins than an exclusive distributor) in light of its existing sales and support network for Audi cars in Malaysia.
Maintain Outperform. We maintain our Outperform call on DRB with an unchanged target price of RM3.20 as we believe its current share price is not reflective of deep underlying value of assets & businesses within the DRB group. While the news of Euromobil of losing exclusive distributorship of Audi is a dampener, we believe the financial impact to DRB group will be minimal. We believe the near-term key catalyst for DRB will be the launching of Proton‟s Global Small Car (GSC) which is expected to be either at end-September or October 2014.
Source: PublicInvest Research - 4 Aug 2014
Euromobil and Audi car sales in Malaysia. Euromobil obtained the exclusive distributorship of Audi in February 2010, after previously being a key dealer for the marque. As the exclusive distributor, Euromobil did well in 2013 by more than doubling Audi car sales to 3,102 units (+119% YoY), driven by the huge success of A6 Hybrid which accounted for 1,907 units sold. However, following the discontinuation of tax exemption for A6 Hybrid in 2014, Audi car sales in Malaysia declined to 814 units (-36.4% YoY) for the first half of 2014. While Audi car sales may improve in later part of 2014 due to the introduction of A3 model, overall sales in 2014 will still be significantly lower than 2013. If Euromobil loses its exclusive distributorship of Audi, we believe there is a strong possibility of Euromobil of being appointed a master dealer (earning lower margins than an exclusive distributor) in light of its existing sales and support network for Audi cars in Malaysia.
Maintain Outperform. We maintain our Outperform call on DRB with an unchanged target price of RM3.20 as we believe its current share price is not reflective of deep underlying value of assets & businesses within the DRB group. While the news of Euromobil of losing exclusive distributorship of Audi is a dampener, we believe the financial impact to DRB group will be minimal. We believe the near-term key catalyst for DRB will be the launching of Proton‟s Global Small Car (GSC) which is expected to be either at end-September or October 2014.
Source: PublicInvest Research - 4 Aug 2014
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