DRB-Hicom Bhd is riding high on the coattails of its joint venture partner China-based carmaker Geely. DRB-Hicom, which is the 51% majority owner of Proton Holdings Bhd, is enjoying the fruits of the first flagship product with Geely.
In its recent results report, DRB Hicom noted that Proton’s sales had been boosted in the final quarter of its financial year 2019 (FY19 ended March 31) following the launch of its first ever sports utility vehicle (SUV), the X70 in December 2018.
In the recently announced results, DRB-Hicom also highlighted that it had recorded a full year of operating profit for FY19, the first time it had achieved so in three years.
“For FY19, the company charted an operating profit of RM342mil, against an operating loss of RM817mil (excluding a RM1.1bil research and development grant) in the year before.
“The full year pretax profit came in at RM281.60mil against RM283.8mil in the same period last year,” DRB-Hicom says in its press release.
Its automotive segment was the main booster to its results as it was the strongest performing business segment on the positive reception of the X70 by Malaysians at large.
AMInvestment Bank Research notes that this automotive segment had chalked up a five-year high pretax profit of RM258.7mil in the fourth quarter of FY19 after excluding the government grant in the previous financial year.
“We saw increasing stability from the segment, from narrowing losses in Q1 and Q2 to a profit in the two recent quarters.
“This was due to a strong demand for Proton vehicles backed by the X70,” the research house says.
DRB Hicom in its press release says also that with the recent car launches and updated models, it is confident of seeing improved sales for the calendar year of 2019, moving forward.
In calendar year 2018, despite an increased total industry volume from the previous year, Proton had however still experienced some contraction in terms of volume year-on-year (y-o-y).
Market observers and strategists points out that DRB-Hicom and Geely needed to craft a longer term plan to take the Proton brandname to greater heights.
“I think this is a good restart for Proton with the Geely partnership and it is now showing up on the bottomline.
“But it does appear that Proton is being buoyed mainly by the X70 at the moment.
“Management needs to plan for more clarity ahead should the hype on the X70 cool off eventually,” says an observer.
AMInvestment Bank Research does believe that Proton sales volume will continue to be strong with the recent launch of Iriz, Exora and Persona and the upcoming launches of the Saga and X50 as its vehicles are affordably priced, which caters to the mass market. For FY19, Proton recorded a total sales volume of 70,200 units (+9% yoy) while Honda sold a total of 100,300 units ( minus 6% y-o-y), the research house notes.
Kenanga Research meanwhile says in its report that DRB-Hicom’s FY19’s fourth quarter had recorded a significant turnaround from the previous consecutive quarter with a core net profit of RM188mil.
This is a quarter-on-quarter (q-o-q) rise of 157% on the turnaround of its automotive’s segment profit contributions of RM259mil from a profit of RM1mil in the third quarter of FY19.
“We believe this (turnaround) was contributed by Proton, especially with the sales of the higher margin all-new Proton X70 with 30,000 bookings and 14,000 units delivered,” Kenanga says in its note.
The research house notes that this turnaround due to the Proton X70 and supported by the face-lifted Proton Iriz and Persona had helped maintain the status quo at Proton which saw flat sales of 15,511 units (0%) and Honda units sales at 22,367 units (-1%) compared to the previous year.
Despite the upbeat situation with Proton, Kenanga however decided to downgrade to “underperform” from “market perform” with a lower sum-of-parts target price of RM1.80 (from RM1.90), implying a price to earnings ratio (PER) of 17 times on FY20 estimated earnings per share.
Despite the turnaround in its automotive segment for the quarter, Kenanga says that there were concerns of its significantly lower 34% associate Honda’s contribution while the losses at Pos Malaysia, its 53.5% owned subsidiary had expanded which could limit its net profit growth in the coming quarters.
Other analysts say that it appears that the successes with the Proton X70 may have come at the expense of its competitors, including Honda since the former comes at a lower price point.
While there was a downgrade at Kenanga, AMInvestment Bank Research says it upgraded DRB-Hicom from an “underweight” to a “hold” with a higher fair value of RM1.78 (from RM1.74).
“We raise DRB-Hicom’s FY20–FY21 core earnings by 358–107% based on stronger Proton sales volume assumptions of 10–5% from 5–2% and better cost management.
“Note that the group has a slew of new launches this year - the Saga facelift and the all-new X50, which is a smaller version of the X70,” AMInvestment Bank Research says.
Proton will continue to be the wildcard for DRB-Hicom moving forward and its outlook appears to have changed for the better now that the Geely partnership looks to be moving ahead well as planned.
Read more at https://www.thestar.com.my/business/business-news/2019/06/08/drbhicom-gets-lift-from-proton/#GsdSBdhmucBZ1KAE.99
