Proton has maintained its no.3 position, after it overtook Toyota in October
KUALA LUMPUR: CIMB Equities Research expects DRB-Hicom to narrow its losses in FY18 due to lower loss recognised at Proton following the completion of the proposed joint-venture with Geely.
It said on Wednesday the core net loss of RM558m for the financial year ended March 31, 2017 was worse than its and consensus expectations due to wider-than-expected losses in the auto division.
However, core net loss in FY3/17 narrowed by 9.2% on-year due to stronger contribution from the services segment following the consolidation of Pos Malaysia.
“Moreover, we see stronger earnings contribution from the services division, driven by the logistics and aviation businesses on the back of growing e-commerce activities.
“Maintain Add with an unchanged RM2.25 sum-of-parts based target price,” it said.
CIMB Research said DRB-Hicom’s revenue in 4QFY3/17 surged 32% year-on-year due to stronger sales across all divisions – automotive (+11%), services (+81%) and property (+122%).
The group attributed the higher revenue to stronger sales at Proton and increase in concession and logistics revenue following the consolidation of Pos Malaysia.
It also posted higher associates profit of RM38.7m vs. RM8.7m loss a year ago, driven by higher sales from Honda.
“Overall, DRB-HICOM posted lower core net loss of RM238m vs. RM485m in 4QFY3/16,” it pointed out.
For FY17, revenue fell by 0.9% year-on-year due to lower sales from the automotive division, which fell by 14% year-on-year on the back of lower sales volume from Proton, which fell 23% year-on-year to 72,000 units.
Overall, DRB-HICOM reported a lower core net loss of RM558m vs. RM614m in FY3/16, after adjusting for gains on the disposal of the Corwin building in Singapore and losses from the re-measurement of Pos Malaysia.
“Stripping out Proton’s losses, we estimate that it posted a higher net profit of RM532m in FY17 vs. RM464m in FY16,” it said.
"Services division revenue rose 41% year-on-year in FY17 due to higher contribution from the logistics division following the consolidation of Pos Malaysia. DRB-Hicom now owns 53.5% of Pos Malaysia (vs. 32.2% previously.).
Services revenue accounted for 29% of group revenue in FY17 compared to 21% in FY16. Overall, services division pretax profit grew 43% year-on-year.
“We are positive on Proton’s partnership with Geely given that it will help to raise plant utilisation and offers Proton the opportunity to leverage Geely’s technology through platform sharing, technology transfer, etc. Proton will be given the rights to manufacture, sell, market and distribute Geely platforms under the Proton brand name in Malaysia and Asean.
“Overall, we believe the partnership will expedite Proton’s recovery to sustainable profitability. Both parties are expected to sign a definitive agreement in 3QCY17.
“We cut FY18F EPS forecast by 83% as we expect DRB-Hicom to remain in the red in FY18F due to ongoing losses at Proton. However, we expect lower losses recognised from Proton in view of the joint-venture with Geely which should be completed in 2HFY3/18F.
“We also expect stronger contribution from the services division, driven by Pos Malaysia’s logistics and aviation business riding on growing e-commerce activities.
“Maintain Add and RM2.25 SOP-based target price. Stronger earnings recovery at Proton and higher profit contribution from the services division are potential re-rating catalysts for the stock. Key downside risks to our call are delays in Proton-Geely JV and sluggish sales from Proton,” it said.
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