DRB-Hicom to improve further on Proton’s increasing sales


DRB-Hicom Bhd is in a sweet spot to deliver better financial results on Proton Holdings Bhd’s improving sales volume driven by its flagship SUV, the X70.

As of the end of March, Proton has delivered over 9,900 X70s with more than 25,000 bookings to date.

DRB-Hicom, which holds a 50.1% stake in Proton while  Zhejiang Geely Holding Group Co Ltd at 49.9%, has returned to the black in the third quarter ended Dec 31, 2018 (3Q19) with a net profit of RM73 million against a net loss of RM70.03 million in the same period a year ago, partly boosted by Proton.

Improvement across its automotive, services and property businesses saw revenue increase 9.31% year-on-year (YoY) to RM3.17 billion.

“Proton may outnumber Honda Malaysia Sdn Bhd’s volume next year and become the No 2 carmaker if it is able to keep the momentum going,” Kenanga Research analyst Wan Mustaqim Wan Ab Aziz told The Malaysian Reserve.

For DRB-Hicom, Wan Mustaqim said the recovery in Proton’s volume will net off the drop in volume of Hondas sold by DRB-Hicom.

Proton CEO Dr Li Chunrong has stated that the company is targeting sales of 90,000 units in 2019 and 400,000 units by 2027, based on its 10-year strategic turnaround plan in becoming the largest original equipment manufacturer in Malaysia and third-largest in South-East Asia in terms of market share.

In comparison, Honda targets to sell 95,000 cars this year, down 7% YoY from the 102,282 units sold in 2018.

Regardless, Wan Mustaqim said the market will first need to see how Proton fares six months after the X70 launch.

Hong Leong Investment Bank Bhd (HLIB) has increased earning forecasts for DRB-Hicom by 3.8%, 22.6% and 6.7% for the financial year 2019 (FY19) to FY21 respectively, following the adjustment on sales volume and margin for the group.

It has a ‘Buy’ call on DRB-Hicom with a higher target price of RM2.78.

The stock rose seven sen or 3.4% to RM2.14 at the close yesterday.

“We expect DRB-Hicom to continue to report earnings improvement, leveraging on Proton’s turnaround momentum, as this can be witnessed in DRB-Hicom’s improved 3Q19 result,” HLIB analyst Daniel Wong noted in a recent report.

Wong said the market has been building up expectations on Proton’s new model line-up following the X70 launch.

Apart from the X70, Proton is expected to launch two more Geely-based models — namely the SUV Binyue dubbed the X50, and multi-purpose vehicle Jiaji in the next couple of years.

Proton is set to launch the facelifted Persona and Iriz models soon, while a facelifted Saga will be next.

The carmaker has inked a distribution partnership in Pakistan with Al-Haj Automotive for the distribution and assembly of its cars there.

Proton is also exploring the potential of assembling its cars in Egypt with its distributor there, Alpha Group Ezz Elarab.

The company is investing RM1.2 billion on a next-generation manufacturing plant in Tanjung Malim, Perak, with a production capacity of 150,000 units per annum, and which is targeted to commence operation by September this year.

The expansion is to cater for the X70 completely knocked-down units and other future Proton models.