DRB-Hicom poised for steady recovery on higher auto sales

Proton Saga made up the majority of units sold, while X50 and X70 contributed 38% of total volumes in April 2021


DRB-HICOM Bhd is in a good position for a steady recovery as its auto segment recorded an increase in sales, according to RHB Small Cap Asean Research.

Carmaker Proton Holdings Bhd sold 15,017 cars in April 2021 in domestic and export markets, an increase of 0.18% from March 2021 for an estimated market share of 26.7%.

Analyst Eddy Do Wey Qing said the Proton Saga made up the majority of units sold during the period, while SUV sales from both X50 and X70 contributed 38% of total volumes in April 2021.

“Proton vehicle sales volumes (including exports) in April remained flattish, but the accumulative sales volumes are now at 39% of our estimate,” he said.

However, the impending end of sales tax exemption, which will end on June 30, 2021, is expected to draw a decline in the immediate months after as consumers bring forward purchases.

“Nonetheless, sales momentum should continue to be supported by the spillover of outstanding orders not fulfilled during the sales tax exemption period, the ongoing replacement cycle, new facelift models and the new model launches expected towards the end of the year,” he said.

He added that growth beyond 2021 is likely from a gradual improvement in consumer sentiment as the immunisation programme gains traction.

While the sales momentum is expected to drive the second quarter of 2021 (2Q21) as sales tax exemption comes to an end, any extension of the Movement Control Order (MCO 3.0) may adversely impact showroom footfalls, posing volume estimate downside risks.

Do added that the research house adjusted its earnings for the group from 2021 till 2023 by 3%, 3% and 5% respectively.

“We lift our financial year 2021 (FY21) sales volume forecast for Proton to 123,000, 123,615 and 129,615 units from 112,300, 123,665 and 123,665 units respectively, which factors in a potential slowdown in sales in 2Q21 and positive volume growth.”

“We also updated our assumptions for the services segment following the latest annual report, which contributed positively to our earnings. The gains are offset by lower margins assumption at Proton after factoring in a stronger US dollar/ringgit of RM4.15 for FY21F and RM4.25 for FY22F and beyond from RM4.12 previously,” Do noted.

Meanwhile, Do also said in DRB-Hicom’s latest annual report, its Composites Technology Research Malaysia Sdn Bhd remained profitable for FY20.

“An overall positive tone was painted for FY21, which is expected to be supported by the pickup in travel and significant backlog of orders at both Airbus SE and Boeing Co. DRB-Hicom noted that FY21F earnings should be supported by contracts secured in FY20 for B787 floor grid from GKN US and A350 in-board flaps from Strata Manufacturing PJSC, as well as the resumption in delivery of the Embraer E190 in FY21,” he said.

For its property sector, post completion of the divestment of non-industrial land assets in 4Q20, it is expected that the revenue will be supported by the maintenance fees from Media City Ventures Sdn Bhd and Integrated Immigration Custom, Quarantine and Security, with an estimation of recurring revenues of RM50 million for FY21-FY23.

Additionally, Pos Malaysia Bhd’s focus will remain on margins improvement.

“Operationally, this entails continued scaling-up of its courier business digital transformation of its retail business and further costdown initiatives.”

“Pos Malaysia will also continue engaging with the government on regulatory reforms to support the courier industry’s long-term sustainability. Overall, management is cautiously optimistic of returning to profitability in FY21, backed by a recovery in its non-postal segments in tandem with the reopening of the economy,” Do said.

Moving forward, the research house said it will maintain its ‘Buy’ call for the group with a higher target price of RM2.48 from RM2.01 as it reworked its valuation and adopted relative valuations for key operating segments, compared to the previous asset-based approach.