KUALA LUMPUR (March 24): Hong Leong Investment Bank (HLIB) Research on Thursday (March 24) maintained its "buy" call on DRB-Hicom Bhd with an unchanged target price of RM2.30 as it remained positive on the company’s outlook on strong automotive sales growth.
Its analyst Daniel Wong said in a note that he remained positive on the company after a meeting with the management.
He sees the group leveraging sales and service tax exemptions and attractive model line-ups from Proton, Honda and Mitsubishi.
It also had strong leverage onto Proton's robust growth momentum, he added.
According to him, the group showed a strong turnaround in its core profit of RM216.6 million for the fourth quarter ended Dec 31, 2021 (4QFY21) (versus RM6.9 million for 4QFY20; -RM162.3 million for 3QFY21), driven mainly by the automotive segment.
Proton continued to show a promising performance on the back of strong demand, said Wong.
He also said the management targets continued growth of 18.6% to 30.8% in sales volume in FY22.
Wong said that Proton made a strong comeback in 4QFY21, driving operating profit before tax (OPBT) to RM245.9 million for the automotive segment (versus RM135.2 million for 4QFY20; -RM170.1 million for 3QFY21) on the back of sales of 40,500 units during the quarter (+15.7% year-on-year; +171.6% quarter-on-quarter).
Barring unforeseen circumstances, he said that the management expects the overall automotive OPBT margin (8.1% in 4QFY21) to be sustained in FY22, mainly supported by Proton sales.
He said that the carmaker had set a target of 136,000 to 150,000 units for FY22, including the export volume (mainly driven by high demand in Pakistan).
He opined that Proton will continue to ramp up production in FY22 in order to meet the high order backlog of 60,000 units.
He also said Proton had secured enough microchip supplies to meet current demand and new model launches are expected to be rescheduled to FY23 to focus on current high demand and resolve supply chain issues.
Recognising the emerging trend of the electric vehicle market, he said Proton would most likely venture straight into battery electric vehicles by 2027 (only a minor stepping stone onto the hybrid segment).
Similarly, he said Honda also targets to regain market share with a sales target of 80,000 units in FY22 with attractive new launches.
He noted that in FY21, Honda was affected by the microchip shortage, lockdowns and Covid-19 pandemic-related issues, resulting in a delay in new model launches to early FY22.
On the other hand, he said that Mitsubishi gained a strong position in FY21, driven mainly by the newly introduced Xpander, and sales are expected to be sustained in FY22.
As for DRB-Hicom's 53.5%-owned Pos Malaysia Bhd, he said the company saw lower core losses for 4QFY21 under the new management.
“New initiatives and digitalisation plans have been identified and are being implemented, and the management targets to break even by end-2022,” he said.
At 9.57am on Thursday, DRB-Hicom had risen two sen or 1.45% to RM1.40, valuing the group at RM2.67 billion.