- DRB’s 2QFY13 net profit came in at RM81mil, bringing its
1HFY13 earnings to RM113mil which was way short of expectations, covering just
24% and 25% of our and consensus full-year estimates. The underperformance was
due to the weak auto numbers and higher- than-expected borrowing costs.
- Despite revenue growing more than 3 times, auto’s
operating profit declined by 17%. Apart from the high borrowing costs incurred
for the takeover of Proton, the weak numbers may also be due to more extended
losses from Lotus.
- That aside, the property and construction (PAC) division
is now back in the black at RM11mil due to strong progress billings – we
believe, mostly due to its Glenmarie developments. Similarly, strong sequential
earnings growth was due to strong numbers (+64% QoQ in EBIT) from its services
division – aided by decent growth from both concession and insurance
businesses.
- Going forward, we are excited about the tie-up with Honda,
of which more details on DRB’s plans would be revealed next week. To recap, the
focus of this tie-up would be to develop a 2.0 litre-car via platform sharing,
which we believe is for the long-awaited Perdana replacement model and which
could also involve engine development.
- Although Honda has a strong footing in this segment via
the Accord model, cannibalisation is not an issue due to distinct pricing. We
understand that DRB targets finalisation of this tie-up within six months.
- There is further upside as we believe there will be a
similar arrangement with its other partners to produce models in different
segments. We are not ruling out a tie-up with VW Group to produce B segment
cars. Apart from the technology, DRB would be able to leverage on VW’s strong
global distribution network to market Proton cars overseas. Plus, this would
address the under-utilisation of its Tanjung Malim plant.
- We reaffirm our BUY rating on DRB Hicom, but place our
fair value and estimates under review pending an analyst briefing to be held next
Monday.
Source: AmeSecurities
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