DRB-Hicom (DRB) 2QFY23 reported a lower net profit of RM33.7m (-80.1% YoY, -68.8% QoQ) mainly due to higher operating expenses and absence of disposal gain of RM119.5m in the corresponding quarter last year. This brings cumulative 6MFY23 core net profit to RM141.6m. The results were within our estimates at 46.8% of full year estimates, though slightly below consensus expectation at 43.7%. We keep our estimates unchanged. We continue to like the Group’s prospects underpinned by its transformation and cost management initiatives to strengthen its operational efficiency. We retain our Outperform call on DRB with unchanged sum-of-parts (SOP) based TP of RM2.10.

• Revenue increased by 12.0% YoY to RM3.9bn in 2QFY23 mainly due to higher contribution from the Automotive and Banking sectors. Automotive revenue increased by 12.6% to RM2.8bn mainly attributed to PROTON’s higher sales volume. PROTON sold 37,450 units in 2QFY23 compared to 34,535 units in 2QFY22 as sales were affected by the severe flood incident and shortage of chip supply. Banking sector revenue increased by 41% YoY to RM427.5m mainly due to higher financing income led by growth in financing volume, expanding customer base and rise in the Overnight Policy Rate (OPR). Revenue for the Service sector also increased by 16.2% YoY driven by the in-flight catering business and new contracts secured by Pos Logistic. Revenue for the Property sector increased by 80.7% owing to full completion of work recognized by Media City. This was somewhat offset by lower revenue from Postal (-23.2% YoY), Aerospace and Defence (-3.3% YoY) segments.

• Net profit in 2QFY23 tumbled to RM33.7m (-80.1% YoY) despite higher revenue. This was mainly due to higher operating expenses (+13.9% YoY), higher financing expenses (+9.6% YoY) and absence of disposal gain of RM119.5m in the corresponding quarter last year. Stripping out the non recurring item, core net profit fell by 32.6% YoY. This was exacerbated by wider losses from the Postal Sector as a result of fierce competition and persistent price wars amongst major e-commerce and international players.

• Outlook. 1H 2023 total industry volume (TIV) surged 10% YoY to new high of 366,037 (1H2 2022: 331,746 units), surpassing pre-pandemic levels. On the back of stable economic outlook and further improvement in the automotive industry supply chain environment, the Malaysian Automotive Association has recently revised its TIV forecast upwards from 650,000 units to 725,000 units.
  Despite expiry of the sales and service tax (SST) holiday and rising interest rates, demand for the Group’s offering remain healthy underpinned by new model launches (Proton X90 and Honda WR-V). The Group will continue to enhance product ranges, and targets to launch its first electric vehicle (EV) under the Smart brand in Malaysia with the new model - smart #1 in the 4Q this year. The Group is also committed to strengthening operational efficiency for its other core sectors namely Aerospace and Defence, Banking, Services and Properties. For the Postal sector, it remains on track in its transformation roadmap.

Source: PublicInvest Research - 25 Aug 2023