DRB-Hicom up on Proton revival

Automaker back in the black, target price revised for a positive outlook


DRB-HICOM Bhd’s shares rose to a two-year high on expectations of the revival of Proton Holdings Bhd and an improved showing from Pos Malaysia Bhd.

The counter rose 14 sen or 5.6% to RM2.64 yesterday after a positive outlook and target price upgrade by two research houses.

Hong Leong Investment Bank Bhd (HLIB) revised its target price for DRB-Hicom of RM4.15 (from RM3.03) after having a positive view on DRB’s turnaround progress, underpinned by Proton’s profitable growth in fourth quarter of 2019 (4Q19).

According to HLIB, Proton has returned to the black after the automotive company marked a higher sales volume of 18,300 units, alongside cost-cutting measures, improved operational efficiencies and the contribution of its five-seater SUV, the Proton X70.

“We expect a strong contribution from Proton in the upcoming quarter, given Proton sales reached (a) quarterly high of 25,300 units in 1Q20.

“Apart from continued strong X70 demand, sales growth was also driven by new facelifts for Iriz, Persona and Exora, launched in April 2019,” it stated in a research report yesterday.

HLIB anticipates Proton will continue recording new highs in 2019-2020, given its attractive new model line-ups, including the new completely knocked-down X70 and a Saga facelift by end-2019 and the X50 in mid-2020.

Pos Malaysia, which is 54% owned by the group, is expected to narrow its losses in the next quarter and is still in discussion with regulator the Malaysian Communications and Multimedia Commission over the stamp tariff hike, which was last done in 2010.

The postal delivery service provider reported losses of RM141 million in 4Q19, mainly driven by a RM40 million impairment on goodwill, RM63 million for maintenance for aircraft re- deliveries and RM31 million for staff adjustment.

Pos Malaysia’s shares closed four sen higher yesterday at RM1.83, with a market capitalisation of RM1.43 billion.

HLIB added that the proposed property/asset/land swap exercise with major shareholder Tan Sri Syed Mokhtar Shah will benefit DRB-Hicom, as it will gain RM849 million.

To date, DRB-Hicom has an existing 600-acre (243ha) land bank for industrial development and 860 acres for mixed development.

DRB-Hicom will also subsequently take over the 250-acre land bank of Proton’s Shah Alam plant by 2022. The combined market value of these land banks amounts to RM6.5 billion.

“We expect increasing investor confidence towards DRB-Hicom with the continued momentum in Proton’s turnaround and (its) improving sales volume,” HLIB said.

Echoing a similar view is AmInvestment Bank Bhd, which revised its target price for DRB-Hicom to RM3.18 (from RM1.78) based on revised valuation for all of the group’s business segments.

The bank believes a turnaround might come sooner than expected as it witnesses DRB-Hicom’s ongoing, aggressive efforts to revive and win investors’ confidence in the Proton brand.

“We think that DRB-Hicom’s share price still has (an) upside as Proton continues to slowly but steadily regain traction in the local automotive space,” it said in a research note.