KUALA LUMPUR (June 1): CGS-CIMB has downgraded DRB-Hicom Bhd from "add" to "hold", with a lower target price (TP) of RM1.95 (from RM2.36), based on an expected delay in its earnings recovery after tighter restrictions were reimposed.

In a note today, the research house's analyst Mohd Shanaz Noor Azam raised its revalued net asset value (RNAV) discount to 30% from 25% prior to reflect the uncertainty in its earnings recovery.

Mohd Shanaz also lowered his earnings per share (EPS) forecasts by 17%-40% for the financial year ending Dec 31, 2021 (FY21) to FY23 on expectations of bigger losses from Pos Malaysia Bhd due to weaker demand in the logistics and aviation sectors.

"In addition, we project a lower contribution from DRB-Hicom Defence Technologies (DEFTECH) in view of potential delays in its AV8 armoured vehicle delivery from 2021 to 2022. To recap, the group still has 42 units due for delivery by end-2022," he said.

To recap, the group's core net losses of RM22 million for the first quarter ended March 31, 2021 (1QFY21) arose from bigger losses posted by its 53.5%-owned subsidiary Pos Malaysia, which recorded a RM42 million core net loss on weaker demand for its aviation services, as well as lower armoured vehicle delivery as DEFTECH delivered only two units of AV8 during the quarter.

However, he noted that Proton Holdings Bhd had a sizeable order backlog to help its sales volume in the second half ending Dec 31, 2021 (2HFY21), supported by the extension of the sales and service tax (SST) holiday to Dec 31.

However, reimposed lockdown measures mean automotive plants will not operate except for equipment maintenance and upkeep purposes for two weeks in June, which could affect Proton's sales volume for the month.

At 11.25am today, DRB-Hicom was three sen or 1.66% lower at RM1.78, valuing the group at RM3.5 billion.