DRB-Hicom relies on strong auto sales

KUALA LUMPUR: DRB-Hicom Bhd has a positive outlook, based on robust auto sales.

Hong Leong Investment Bank (HLIB) Research said the group saw a strong recovery in core profit to RM216.6 million in the fourth quarter of 2021 (4Q21) from RM6.9 million in 4Q20, mainly thanks to the automotive segment.

Following a meeting with DRB-Hicom management, he noted that Proton Holdings Bhd continued to show a promising performance thanks to the increase in demand.

“DRB-Hicom’s management is targeting continued year-over-year growth of 18.6% to 30.8% in sales volume in the fiscal year ending December 31, 2022 (FY22).

“Similarly, Honda Malaysia is also aiming to regain market share with a sales target of 80,000 units in FY22 with attractive new launches,” HLIB Research said.

Proton has set a target of 136,000 to 150,000 units for FY22. It will continue to increase production to meet the high order backlog of 60,000 units. New model launches are expected to be delayed to FY23. It would most likely venture into the battery electric vehicle or BEV business by 2027.

Meanwhile, Honda is poised to regain market share with a sales target of 80,000 units in FY22.

On the other hand, Mitsubishi Motors Malaysia gained a strong position in FY21, thanks to the new Xpander, and sales are expected to hold up in FY22.

HLIB Research pointed out that with the completion of deliveries of the AV8 Amphibious Multirole Armored Vehicles in FY22, the contribution from DRB-Hicom Defense Technologies Sdn Bhd is likely to decline until it is able to get a new defense contract.

Conversely, Composites Technology Research Malaysia is expected to ramp up production, taking advantage of the recovery in the global aviation sector in FY22.

As for real estate development, DRB-Hicom has highlighted the Automotive High Tech Valley in Tanjung Malim, which will involve an investment of RM32 billion.

It also includes township developments and infrastructure and equipment spending to transform Proton City into a smart automotive hub.

Regarding Pos Malaysia Bhd, 53.5% owned by DRB-Hicom (PosM), HLIB said it continued to weigh on the group’s results.

Nonetheless, PosM reported lower core losses quarter over quarter in 4Q21, with ongoing restructuring exercises under a new management team.

“Management recognized that PosM was at a disadvantage due to lack of competitive experiences. Various digitization initiatives and efforts were identified to improve its competitiveness.

“Management was aiming to break even by the end of FY22,” HLIB Research said.

HLIB Research reiterated its “buy” call on DRB-Hicom with an unchanged target price of RM2.30 based on a 25% discount to the sum of the parts valuation of RM3.06.

Meanwhile, CGS-CIMB Research said Proton has entered into a memorandum of understanding for a potential collaboration with smart Automobile Company – a premium electric vehicle brand for electric vehicle distribution in Malaysia and Thailand.