DRB-Hicom to leverage on strong auto sales

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

Hong Leong Investment Bank (HLIB) Research said the group posted a strong turnaround of its core profit to RM216.6mil in the fourth quarter of 2021 (4Q21) compared with RM6.9mil in 4Q20, driven mainly by the automotive segment.

Following a meeting with DRB-Hicom management, it noted that Proton Holdings Bhd continued to show a promising performance on the back of rising demand.

“DRB-Hicom management targets a continued year-on-year growth of 18.6% to 30.8% of sales volume in the financial year ending Dec 31, 2022 (FY22).
“Similarly, Honda Malaysia also aims to regain market share with a sales target of 80,000 units in FY22 with attractive new launches,” said HLIB Research.

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

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

On the other hand, Mitsubishi Motors Malaysia has gained a strong position in FY21, driven by the new Xpander and sales are expected to sustain into FY22.

HLIB Research pointed out that with the completion of deliveries of the AV8 amphibious multirole armoured vehicles in FY22, DRB-Hicom Defence Technologies Sdn Bhd’s contribution is likely to drop until it is able to secure a new defence contract.

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

On property development, DRB-Hicom highlighted the Automotive High Technology Valley in Tanjung Malim, which will involve RM32bil in investment.

It also includes township developments and outlays on infrastructure and amenities to turn Proton City into a smart automotive hub.

As for DRB-Hicom’s 53.5%-owned Pos Malaysia Bhd (PosM), HLIB said it continued to drag on the group’s bottom line.

“The management targeted to break even by end of FY22,” said HLIB Research.

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

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