DRB-Hicom (DRB) reported a net loss of RM17.0m in 2QFY24, compared to a net profit of RM33.7m in 1QFY23, primarily due to weaker performance in Proton Holdings and widened losses in Pos Malaysia. The results were below both our and consensus estimates, at 23.2% and 23.3% of full-year forecasts respectively. We have trimmed our FY24-FY26F earnings forecasts by 20-30%, factoring in lower vehicle sales and weaker performance across all its business divisions. Consequently, our sum-of-parts (SOP) based TP is revised to RM1.38 (previously RM1.70). We maintain a Neutral call on DRB.

• 2QFY24 Revenue fell by 5.6% YoY to RM3.7bn, mainly due to lower contribution from the automotive, postal and property segments. Automotive’s revenue decreased by 10.8% YoY to RM2.5bn on lower vehicle sales. PROTON’s sales volume fell 11.1% YoY to 32,938 units in 2QFY24 (2QFY23: 37,034 units), as sales were affected by a scheduled plant maintenance shutdown during the quarter. Postal sector’s revenue decreased by 10.2% YoY to RM240.5m following reduced revenue in its international business. The property segment’s revenue plunged by 71.4% YoY to RM26.1m due to the absence of industrial land sales and completion of a project under the concession agreement last year. Nevertheless, this was partly offset by higher revenue in Aerospace & Defence (A&D), Banking and services sectors. A&D posted a 43% YoY increase in revenue to RM187.8m, owing to higher deliveries of aircraft parts. The banking sector’s revenue increased by 22.8% YoY to RM524.8m, owing to higher financing income and customer base expansion.

• 2QFY24 reported a net loss of RM17.0m, compared to a net profit of RM33.7m in 1QFY23, primarily due to weak performance in the automotive and postal business. Automotive profit before tax (PBT) dropped 27.3% YoY to RM96.9m due to lower sales volume. Losses in the postal business widened by 53.2% YoY to RM64.9m due to decreased revenue from its international operations. Property segment’s losses also increased by 14% YoY to RM12.2m due to the absence of industrial land and properties sales. The banking and services segment saw PBT decreased by 37.8% and 62.6% YoY, respectively, despite higher revenue. However, this was partly offset by A&D segment, which turned profitable with a PBT of RM5.1m, compared to a loss before tax of RM6.7m in 2QFY23.

• Proton e.MAS. Proton recently introduced its electric vehicles (EV) brand, named e.MAS, along with its first C-segment EV, the e.MAS 7, which is set to launch in Malaysia by end of 2024. The e.MAS 7 will be a fully imported (CBU) model and is widely expected to share the mechanical components of the Geely Galaxy E5.

• Subdued outlook. While Malaysia Automotive Association revised Malaysia’s Total Industry Volume (TIV) forecast to 765,000 units for 2024, this projection is still below the record-breaking sales of 799,731 units achieved in 2023. A softer demand is anticipated in the second half of the year due to the expected rationalisation of fuel subsidy, weaker consumer sentiment and a lack of catalysts for the auto sector. Additionally, the influx of new model launches and competitive pricing may intensify market competition, further squeezing sector margins and limiting earnings growth.

Source: PublicInvest Research - 29 Aug 2024