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DRB-Hicom Bhd 
(Feb 27, RM1.95)

Maintain buy call with an unchanged target price of RM3.60: DRB-Hicom posted a core net loss   for the third quarter of financial year 2015 ending March (3QFY15) of RM29.6 million, bringing nine-month ended December 2014 (9MFY15) total earnings to RM144 million (-11% year-on-year), accounting for only 36% and 46% of our and consensus estimates respectively. 

It declared an interim dividend of 1.5 sen per share, to be paid on April 28, 2015. We maintain our dividend per share (DPS) assumption at seven sen per share. The effective tax rates were notably high at 75% and 39% for 3QFY15 and 9MFY15,respectively. At a normalised rate of 25%, the 9M earnings would have made up 68% of our forecast. Regardless, operating performance was still below expectations, with earnings before earnings before interest and tax (Ebit) accounting for only 42% of our estimate. The bottom line was boosted by a significant improvement in its associates, in particular at Honda Malaysia Sdn Bhd. Share of associate result jumped 2.6 times to RM227 million in 9MFY15. 

For the nine-month period, Honda Malaysia’s sales volume jumped 57% to 61,868 units, at 13.9% of passenger vehicle (PV) market, from 39,531 units (9% market share) in the previous corresponding period. Strong contributions came from the City, Accord and Jazz models. 

During the same period, DRB-Hicom’s subsidiary Proton Holdings Bhd registered a 21% decline in sales to 83,049 units from 104,410 units a year earlier, while its market share of the PV market declined by 5.3 percentage points to 18.6%. Auto Ebit was nearly halved to RM76 million on the back of the steep decline in Proton car sales and higher promotion and incentives offered towards the end of 2014. 

All of the auto operating profit, we believe, came from the defence and aviation (D&A) sector, particularly from the RM7.55 billion 8x8 armoured-wheeled vehicles project. Notably, the D&A sector’s revenue more than tripled to RM1.6 billion (19% of auto division revenue) from a year earlier. 

We maintain our numbers for now, pending a review with a downside bias to our forecasts. We maintain “buy” call on DRB-Hicom with an unchanged fair value of RM3.60 per share — a 15% discount to our sum-of-parts value of RM4.25 per share.— AmResearch, Feb 27

DRB-Hicom_020315

 

This article first appeared in The Edge Financial Daily, on March 2, 2015.

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