DRB-Hicom to leverage auto sector’s turnaround

In lieu of the positives, analyst has placed ‘Buy’ call on DRB-Hicom with an unchanged TP of RM2.45


DRB-HICOM Bhd is poised to benefit from the automotive sector’s strong recovery, underpinned by Proton Holdings Bhd’s solid turnaround since the second half of 2020.

Hong Leong Investment Bank Bhd (HLIB) analyst Daniel Wong said the local automaker saw stronger rebound in sales compared to the first six months of last year when the Movement Control Order was first implemented.

“Management will expect a continuous recovery this year, while Proton remains committed to launching a new model every year with the focus on Pakistan, Brunei, Bangladesh and Kenya, while discussions are ongoing for Thailand and Indonesia.

“Management remains confident of Proton’s 10-year turnaround plan to become the leading marque in Malaysia and top three in Asean,” Wong said in a recent note.

DRB-Hicom last month reported a net profit of RM985.99 million and revenue of RM4.85 billion for the fourth quarter ended Dec 31, 2020 (4Q20), driven primarily by the stronger performance of its automotive segment.

DRB-Hicom also has stakes in Honda Malaysia Sdn Bhd, Isuzu Malaysia Sdn Bhd, Euromobil Sdn Bhd and Mitsubishi Motors Malaysia Sdn Bhd.

Honda Malaysia saw a strong recovery in its 4Q results, on the back of its flagship Honda City model.

“Honda is expected to launch two models in 2021, while similarly, Mitsubishi Motors Malaysia also received strong demand from newly launched Xpander, which started as completely knocked-down,” Wong said.

DRB-Hicom is primarily involved in the development, assembly and sales of motor vehicles, as well as banking, property and construction.

Wong expects DRB-Hicom-controlled Bank Muamalat Malaysia Bhd to recover after the bank recognised a modification loss of RM46.2 million and higher credit loss recognition last year.

“The worst is expected to be over,” Wong noted.

He expects Pos Malaysia Bhd’s turnaround to remain a risk due to the ongoing operational risk and drag from Pos Aviation Sdn Bhd.

“DRB-Hicom’s 53.5%-owned Pos Malaysia disappointed the market with losses, being affected by pro-cessing hub closure in the 4Q19.

“Despite management targeting for a turnaround in financial year 2021, we remained cautious due to continued operational risk and drag from the aviation segment,” Wong said.

In lieu of the positives, HLIB has placed a ‘Buy’ call on DRB-Hicom with an unchanged target price (TP) of RM2.45.

DRB-Hicom traded two sen or 1% lower last Friday at RM1.98, valuing the conglomerate at RM3.83 billion.

“We remain positive on DRB- Hicom’s outlook on strong automotive sales growth, leveraging sales and services tax exemptions and attractive model line-up from Proton, Honda and Mitsubishi. DRB-Hicom also has strong leverage onto the robust growth momentum of Proton over the next few years,” Wong said.

Read our previous report here

DRB-Hicom’s auto sales will remain solid