Optimism remains high for DRB-Hicom amid market competition

HONG Leong Investment Bank (HLIB) remained positive on DRB-HICOM Bhd’s long-term outlook on potential growth driven by Proton subsidiaries amid increasing market competition.

In a research note, HLIB said Proton has targeted to achieve sales of 160,000 units in 2024, up from 151,000 units in 2023, driven by the introduction of new models and attractive promotional campaigns.

“Proton has recently launched the updated X50 RC with good discounts and is expected to launch another X70 facelift soon, along with introducing a new electric vehicle (EV) model by the end of the year in line with management’s target of one new model launch per annum,” it said.

HLIB said the DRB-HICOM management brushed aside the potential market competition from Zeekr’s entry into the Malaysian market, given the different market segment, where Zeekr would be positioned as a higher premium segment than Proton’s e.MAS EV.

Zeekr is a Chinese publicly listed automobile company and brand owned by Geely Automobile Holdings.

HLIB also said that Bank Muamalat and Composite Research Technology Malaysia Sdn Bhd (CTRM) would continue supporting DRB-HICOM 2024’s performance.

“We reiterate our ‘buy’ rating with an unchanged target price (TP) of RM1.65 based on a 20% discount to sum-of-parts (SOP) RM2.04,” said the research firm.

Moreover, Kenanga Research maintained its ‘market perform’ call on DRB-HICOM with a sum-of-parts (SOP)-derived TP of RM1.40.

The research house said it likes the company for being the second largest player in the local automotive sector, second only to Perodua, with a market share of about 30%, and its strong Proton and Honda franchises, as well as its improving banking franchise under Bank Muamalat.

“However, DRB-HICOM’s outlook has weakened with rival Perodua turning up the heat with aggressive new launches, coupled with earnings drags from certain non-performing units,” it added.

Kenanga Research said the risks to its call include consumers cutting back on discretionary spending (particularly big-ticket items like new cars) amidst high inflation and persistent disruptions (including chip shortages) in the global automotive supply chain.

“Other risks also include a slowdown in capital market activities (Bank Muamalat) and a global recession hurting the demand for transport and aviation services.”

As of 1pm, DRB-Hicom’s share price was unchanged at RM1.39, giving the group a market capitalisation of RM2.69 bil. – June 14, 2024

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