DRB-Hicom (DRB) reported 1QFY15 (Mar) revenue of RM3.72bn (+21.9% YoY,
-10.6% QoQ) and net profit of RM107.8m (+951.5% YoY, -35.4% QoQ due to
lack of disposal gains). Excluding key non-operational items, its core
net profit of RM83.7m (1QFY14: net core loss of RM14.8m) was broadly in
line with our and market expectations, making up 26.3% and 24.6% of our
and consensus full-year estimates respectively. DRB‟s 1QFY15 earnings
were lifted by higher AV8 contribution, inclusion of CTRM earnings and
strong performance from its 34%-owned associate, Honda Malaysia. Its
services division maintained its steady performance, in particular Alam
Flora, KLAS and Bank Muamalat. We believe DRB offers an attractive
risk-reward proposition at current price level (near 52-week low) and
reiterate our Outperform call on DRB-Hicom with a TP of RM3.20.
Automotive division lifted by AV8, CTRM and Honda Malaysia. Despite on-going challenges at Proton, DRB‟s automotive division registered a healthy pre-tax profit of RM120.0m (+17.7% YoY, 4QFY14: loss of RM57.6m) mainly due to: (i) higher percentage of AV8 armoured carrier project completion; (ii) increased contribution from acquired CTRM; and (iii) strong sales from Honda Malaysia (1QFY15: 21,576 vs. 1QFY14: 9,856) with launch of new Honda City in March 2014. In addition, we estimate losses from Lotus have narrowed with continued improvement in sales of 505 units in 1QFY15 (1QFY14: 386 units). Going forward, DRB‟s defence segment is expected to improve its contribution and will offset any potential weakness in Proton.
Stable performance in services division but weaker PAC performance. Its services division recorded higher revenue of RM780.5m (+21% YoY, +9% QoQ) mainly due to newly-acquired KLB and pre-tax profit of RM110.4m (+78% YoY, -12% QoQ due to Uni.Asia Life disposal gain in 4QFY14). Its property, asset & construction (PAC) division recorded weaker revenue of RM60.3m (-23% YoY, -89% QoQ due to Tebrau land disposal in 4QFY14) and pre-tax profit of RM5.1m (-33% YoY, -97% QoQ) with lower property projects earnings. Looking forward, its services division will continue its stable performance anchored by Bank Muamalat and concession businesses, but its PAC performance will hinge on the timing of its property projects launches.
Launch of Proton’s new GSC model by end-Sep 2014. We believe near-term re-rating catalyst for DRB will be the launching of Proton‟s global small car (GSC) at end-September. There will be several variants such as 1.3-litre & 1.6-litre of the B-segment hatchback which will compete with Perodua Myvi.
Maintain Outperform. We reiterate our Outperform call on DRB-Hicom with an unchanged TP of RM3.20 based on sum-of-parts valuation. While DRB‟s share price YTD performance has been disappointing partly due to foreign selling with foreign shareholding dropping to 18.2% at end-2Q14 from 19.7% at end-4Q13, we believe concerns over Proton have overshadowed DRB‟s long-term potential and value of extensive assets within the group (e.g. 70%-stake in Bank Muamalat, 32%-stake in Pos Malaysia and prime land bank & properties). In our opinion, increasing contribution from DRB‟s defence units and launch of Proton‟s GSC will support the group‟s forward earnings growth.
Source: PublicInvest Research - 29 Aug 2014
Automotive division lifted by AV8, CTRM and Honda Malaysia. Despite on-going challenges at Proton, DRB‟s automotive division registered a healthy pre-tax profit of RM120.0m (+17.7% YoY, 4QFY14: loss of RM57.6m) mainly due to: (i) higher percentage of AV8 armoured carrier project completion; (ii) increased contribution from acquired CTRM; and (iii) strong sales from Honda Malaysia (1QFY15: 21,576 vs. 1QFY14: 9,856) with launch of new Honda City in March 2014. In addition, we estimate losses from Lotus have narrowed with continued improvement in sales of 505 units in 1QFY15 (1QFY14: 386 units). Going forward, DRB‟s defence segment is expected to improve its contribution and will offset any potential weakness in Proton.
Stable performance in services division but weaker PAC performance. Its services division recorded higher revenue of RM780.5m (+21% YoY, +9% QoQ) mainly due to newly-acquired KLB and pre-tax profit of RM110.4m (+78% YoY, -12% QoQ due to Uni.Asia Life disposal gain in 4QFY14). Its property, asset & construction (PAC) division recorded weaker revenue of RM60.3m (-23% YoY, -89% QoQ due to Tebrau land disposal in 4QFY14) and pre-tax profit of RM5.1m (-33% YoY, -97% QoQ) with lower property projects earnings. Looking forward, its services division will continue its stable performance anchored by Bank Muamalat and concession businesses, but its PAC performance will hinge on the timing of its property projects launches.
Launch of Proton’s new GSC model by end-Sep 2014. We believe near-term re-rating catalyst for DRB will be the launching of Proton‟s global small car (GSC) at end-September. There will be several variants such as 1.3-litre & 1.6-litre of the B-segment hatchback which will compete with Perodua Myvi.
Maintain Outperform. We reiterate our Outperform call on DRB-Hicom with an unchanged TP of RM3.20 based on sum-of-parts valuation. While DRB‟s share price YTD performance has been disappointing partly due to foreign selling with foreign shareholding dropping to 18.2% at end-2Q14 from 19.7% at end-4Q13, we believe concerns over Proton have overshadowed DRB‟s long-term potential and value of extensive assets within the group (e.g. 70%-stake in Bank Muamalat, 32%-stake in Pos Malaysia and prime land bank & properties). In our opinion, increasing contribution from DRB‟s defence units and launch of Proton‟s GSC will support the group‟s forward earnings growth.
Source: PublicInvest Research - 29 Aug 2014
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