DESPITE a dismal 3Q FY2021 performance no thanks to strict lockdown measures, DRB-Hicom Bhd can expect Proton to steer the group into a turnaround mode.
After all, the national car brand has managed to register profit in September alone and is expected to continue its recovery trend as the national original equipment manufacturer (OEM) continues to ramp up production and improve deliveries in order to meet the current high order backlogs.
“The management expects a recovery into 4Q FY2021 as Proton continues to ramp up productions to meet the high order backlog of 48,800 units (as of October),” revealed Hong Leong Investment Bank (HLIB) Research analyst Daniel Wong in a results review.
“Proton has secured enough microchip supplies to meet the current demand. New model launches are expected to be postponed to FY2022 due to the supply chain disruption and pandemic concerns.”
In 3Q FY2021, Proton was severely affected by the June-August’s strict lockdown measures. Nevertheless, Proton managed to return to profit with sales of 10,200 units for the month of September.
According to HLIB Research, the DRB-Hicom management has updated that the gradual shifting of the Shah Alam production line to Tanjung Malim is under progress and expected to complete by 2026/2027.
At the same time, Proton is also accelerating its export programme by targeting 5,000 units in 2022 (900 units year-to-date).
“In relation to electric vehicle (EV) progress, the management is waiting for the New National Automotive Policy (NAP) roadmap entailing the EV initiative and targets, but views EV development is still at preliminary stage,” noted HLIB Research.
“The management does not expect Proton to be affected by the prosperity tax (cukai makmur) in FY2022 as the OEM has enough unrecognised losses to offset the taxable income.”
As for DRB-Hicom’s other automotive brands, HLIB Research said Honda has been affected by the microchip shortage since early this year – combined with on-going lockdowns and pandemic-related issues – which resulted in a delay of new model launches.
“Honda is working towards normalising its production and new model introduction to regain its market share in 2022,” the research house pointed out.
“On a brighter side, Mitsubishi’s Xpander has commanded stronger than expected demand. The management is exploring to potentially increase its completely-knocked-down (CKD) production volume.”
All-in-all, HLIB Research maintained its “buy” call on DRB-Hicom with an unchanged target price of RM2.30.
“We remain positive on DRB’s outlook on strong automotive sales growth, leveraging sales and service tax (SST) exemptions and attractive model line-up from Proton, Honda and Mitsubishi,” projected the research house. “DRB also has a strong leverage onto the robust growth momentum of Proton.”
At the close of today’s mid-day trading, DRB-Hicom was unchanged at RM1.59 with 191,100 shares traded, thus valuing the company at RM3.07 bil. – Nov 25, 2021
