DRB-Hicom to rebound in 2H20


DRB-HICOM Bhd is expected to see a rebound in the second half of 2020 (2H20) driven by tax exemptions for new car purchases, after recording its first net loss in five quarters during the January-March period due to Covid-19 disruptions.

The negatives have already been priced in for the conglomerate, which controls national carmaker Proton Holdings Bhd, AmInvestment Bank Bhd said.

“We expect a strong showing for 2H20 as Proton will be a key beneficiary of the expansionary Sales and Service Tax (SST) exemption stimulus implemented by the government due to their entire fleet of vehicles being completely knocked-down (CKD) units, making their products even more attractively priced,” it wrote in a recent note.

However, it foresees that DRB-Hicom’s losses will widen in the second quarter ended June 30, 2020 (2Q20). The research house is keeping its ‘Buy’ recommendation on the group with an unchanged fair value of RM2.49.

Hong Leong Investment Bank Bhd (HLIB) raised its earnings forecasts for the group’s financial years ending Dec 31, 2020 (FY20) and FY21 by 17.3% and 3% respectively.

“We expect a strong rebound for DRB-Hicom’s automotive segment (especially Audi models, Honda models and Proton X70),” it said.

The firm’s subsidiary, Pos Malaysia Bhd, is also likely to benefit from higher courier volumes and higher postal rates, while Bank Muamalat Malaysia Bhd — another unit of DRB-Hicom — is implementing various cost-cutting measures.

HLIB maintained a ‘Buy’ call on the group, with a revised target price of RM2.75 against RM2.32 previously.

DRB-Hicom posted a net loss of RM173.27 million in 1Q20 on the back of RM2.74 billion in revenue. It took a hit from temporary operations closure due to the pandemic containment measures and foreign-exchange losses on borrowings.

Public Investment Bank Bhd said the results were below expectations. “We adjust our forecasts downwards for FY20 to a net loss of RM143.5 million (compared to a profit of RM205.9 million) and FY21-FY22 by an average of 31% as we anticipate lower vehicle sales volume due to the impact of Covid-19 on consumer spending on big-ticket items,” it said.

Kenanga Investment Bank Bhd also predicts lower car sales in 2Q20 as DRB-Hicom did not record any sales in April up to May 12, 2020. It sees cautious spending on high-value discretionary items for the rest of the year.