DRB-Hicom sets ambitious car sales to drive FY22 financial turnaround

The group also expects sales momentum to improve in the coming quarters in view of a healthy order backlog 

by ANIS HAZIM / Pic by MUHD AMIN NAHARUL

DRB-HICOM Bhd’s automotive segment is expected to drive the group’s turnaround in the financial year of 2022 (2022F), supported by its sales tax holiday and an improving supply chain situation, said CGS-CIMB Research. 

According to CGS-CIMB Resarch’s analyst Mohd Shanaz Noor Azam, DRB-Hicom’s management is optimistic for a stronger recovery in FY22F, driven by higher sales volume from Proton Holdings Bhd and Honda (M) Sdn Bhd. 

“Proton and Honda are targeting 136,000 and 80,000 sales volumes in 2022F, respectively, which imply 19%and51%year-on-year growth. 

“Proton is also looking to double its export sales volume from 3,018 units in 2021 to over 6,000 units in 2022F, on the back of encouraging demand from key markets such as Pakistan, which is seeing strong demand for Saga and X70,” Mohd Shanaz said in a note yesterday. 

The analyst said the group also expects sales momentum to improve in the coming quarters in view of a healthy order backlog. 

“For example, Proton had over 60,000 bookings registered as of February, with X50, X70 and Saga made up 80% of the backlog orders,” he noted. 

Recently, Proton entered a memorandum of understanding for potential collaboration with electric vehicle (EV) brand Smart Automobile Co, to distribute EVs in Malaysia and Thailand. 

“We see this new venture as a means for Proton to take advantage of the EV tax incentives that were announced by the government in Budget 2022. It could also eventually pave the way for a local assembly programme,” he said. 

Meanwhile, DRB-Hicom is cautiously optimistic for a narrowing of losses in FY22F although the group expects the postal division to continue to operate in a competitive environment. 

“This is in view of rigorous cost-saving initiatives, given that Pos Malaysia Bhd has completed the second round of a mutual separation scheme on December 2021, 

and customer-centric strategy as the group reallocates resources to set up a new sales team focused on the direct merchant segment that offers higher margins than the e-commerce platform,” he added. 

Thus, CGS-CIMB Research reiterates its ‘Add’ call on DRB-Hicom with an unchanged sum of part (SOP)-based of RM1.70 target price (TP). 

The analyst said that the potential re-rating is higher-than-expected sales volume at Proton and Honda, an earnings turnaround at the postal division, and new contract wins for aero and defense segments. 

“Meanwhile, we see widening losses at the postal division, lower sales volume at Proton and Honda, and extended supply chain disruptions as key downside risks,” he further said.

On the other hand, AmInvestment Bank Bhd Research maintains its ‘Hold’ recommendation and SOP-derived fair value (FV) of RM1.65 for DRB-Hicom. 

AmInvest’s analysts Muhammad Afif Zulkaplly shared that Proton has sold 13,355 units as of the second month of 2022 (2MFY22), while Honda’s has sold 9,888 units for the same period. 

In order to achieve its automotive sales target for 2022, the analysts said that the carmaker needs to maintain Proton’s average monthly sales of 13,700 units, and 7,011 units for Honda. 

Meanwhile, he noted that the group’s sales contributions from export markets remain relatively small compared to the Malaysian market at 3%-4% per annum, which aims to double Proton’s export sales in 2022 from 2021. 

He said that Proton is also working closely with its vendors, searching for win-win solutions to reduce costs in mitigating the impact of rising raw materials prices. 

“The carmaker is negotiating with its technology partner, Zheijiang Geely Holding Group to absorb some of the increases in costs. 

“However, should the trend of rising input costs persist, Proton’s last resort is to pass the additional costs to end consumers,” he said. 

Besides, the RM32 billion investment to develop Automotive HighTechnology Valley as reported by the media recently will not be solely coming from DRB-Hicom’s own pocket. 

“The amount is an estimated value of total investments from various parties, including vendors and potential investors for the next 10-12 years,” he said. 

Additionally, the analyst said that the goal is to transform Proton City into a smart city while attracting high-tech investments, especially within the automobile industry. 

Meanwhile, the key risks could be the shortage of the Proton X70 and X50 parts that are affecting customers’ after-sales service experience which may deter Proton’s years-long brand rehabilitation efforts and limit Proton from reaching its full potential. 

“Other key downside risks are the widening of Pos Malaysia’s losses and a worse-than-expected chip shortage which could disrupt Honda and Proton’s production, while the upside risk is new defence-related contract wins,” he added.