Back on growth track
? DRB-Hicom’s FY21 results beat our and consensus expectations due to stronger-than-expected core net profit delivery from auto segment in 4Q21.
? We expect the automotive division sales momentum to continue in 2022F, driven by new launches from Proton and Honda.
? Upgrade from Hold to an Add with a higher RM1.70 SOP-based TP.
Boost from Proton in 4Q21
Revenue in 4Q21 jumped 94.5% qoq to RM4.1bn, mainly due to higher sales contribution from the automotive segment, led by Proton. Proton revenue rose 2.8x qoq to RM2.4bn in 4Q21 on the back of a 2.7x jump in sales volume to 40.5k units. DRB-Hicom reported RM117m net profit in 4Q21 (against RM179m net loss in 3Q20). Stripping out the exceptional items, DRB-Hicom posted a higher RM253m core net profit in 4Q21 (vs. RM173m core net loss in 3Q21). For FY21, the group posted a wider core net loss of RM72m against RM69m in FY20, which still beat expectations (vs. our and Bloomberg consensus net loss forecasts of RM182m and RM83m).
Automotive segment driving turnaround in FY22F
The automotive segment remains the key driver for the group on the back of 9.9% yoy revenue growth in FY21, driven by higher contribution from Proton, auto distribution and auto components segments, which grew 9%, 78% and 6%, respectively. We attribute the higher revenue to greater sales volume in FY21 amidst a longer lockdown period compared to FY20. For example, Proton’s market share expanded by 1.4% pts to 21.9% in FY21 on the back of 3% yoy sales volume growth, outperforming total industry sales
volume, which fell by 4% yoy. We expect Proton to maintain its growth momentum in FY22F, driven by 1) healthy order backlog, 2) new launches such as a new SUV model and Saga facelift, and 3) higher contribution from export markets. Meanwhile DRBHicom’s 34%-owned Honda Malaysia is projecting 80k (+51% yoy) sales volume in FY22F on the back of two new launches: City hatchback and HR-V. Moreover, we believe the sales tax holiday for passenger vehicles will be extended until Jun 22, helping to drive sales volume growth in 2022F. We project Proton and Honda Malaysia to respectively deliver 15% and 30% sales volume growth in FY22F. Overall, we expect the group to turn profitable in FY22F in view of a pick-up in economic recovery in line with higher vaccination rates and easing economic activity restrictions, fuelling the recovery in its others segments, i.e. logistics, aerospace, banking and services.
Upgrade to an Add with a higher RM1.70 SOP-based TP
We raise our FY22-23F EPS by 4-13% to account for higher contribution from the auto segment. The stock has also fallen by 27% since its 52-week high in Mar 21. The pullback in share price offers a good opportunity for investors to accumulate the stock and ride the growth in automotive sales volume in FY22F. Hence, we upgrade the stock to an Add with a higher RM1.70 SOP-based TP.