Wednesday, 31 May 2017 | MYT 8:41 AM
CIMB Research sees DRB-Hicom
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.
Read more at
http://www.thestar.com.my/business/business-news/2017/05/31/cimb-research-sees-drb-hicom-narrowing-losses-after-proton-geely-jv/#LJQU59JAAGqKZP0H.99
