New impending Proton models and engines will help to freshen up DRB’sageing model line-up. Its other business segments displayed operational resilience. DRB’s balance sheet remained stable, with the gearing at end-2015 sequentially unchanged at 0.66x (0.8x including perpetual sukuk).With the stock already trading at trough valuations, we think the downside is limited and upgrade our call to BUY (from Neutral) with a TP of MYR1.14 (from MYR1.18, 14% upside) based on a target P/BV of 0.3x.

Proton on the move... Although sales of Proton vehicles continue to languish (Figure 3), we think management is on the right path in the effort to improve brand perception. It recently implemented a product recall to fix a faulty coolant hose. Its collaborative efforts with Suzuki and Honda would also spawn new models (the launch of a new Perdana is imminent) and a new engine family utilising direct injection technology.

…but is the main drag on earnings. The weak operating performance at Proton, significant drag from high financing costs and non-recurring charges overshadowed the relatively resilient earnings at its other businesses during the period. Cumulative finance costs and profit attributable to perpetual sukukholders totalled MYR345.2m. The cumulative net impairments, write-offs and mark-to-market losses during the quarter amounted to MYR139.3m.

Forecasts and risks. We slash our FY16F net profit but leave our estimates for FY17-18 broadly unchanged. Key risks include unfavourable forex movements and weak consumer sentiment crimping auto sales.

Upgrade to BUY. We believe DRB is already trading at trough valuations and presents a strong case from a risk-reward perspective. DRB owns many profitable businesses and valuable assets but trades at a fraction of its book value. Applying an undemanding P/BV of just 0.3x (unchanged) on its latest BVPS derives a TP of MYR1.14 (from MYR1.18). Upgrade to BUY.