'Weak' 4Q results seen from DRB-Hicom, stock deemed undervalued — HLIB

by **Cals** Fri 16 May 2014, 02:08

Business & Markets 2014

Written by Ahmad Naqib Idris Adzman Shah of theedgemalaysia.com

Thursday, 15 May 2014 12:00

KUALA LUMPUR (May 15): Hong Leong Investment Bank Bhd (HLIB) expects DRB-Hicom Bhd to report weak results for its fourth quarter ended March 31, 2014 (4QFY14), in view of the challenging automotive market.

“For 2014, we concur with DRB’s view on the tough and competitive automotive market environment, as OEMs (original-equipment manufacturer) fight for market share at the expense of margin through attractive packages, while consumers are facing high living costs and tightening credits,” said HLIB in a note.

HLIB noted that sales of Proton remained weak in 4QFY14 as consumers withheld vehicle purchases. This was in anticipation of lower car prices under the National Automotive Policy 2014 (NAP 2014).

The national marque reported sales of 32,734 units during the quarter, down 3.7% from a year earlier.

Since March, however, Proton sales have improved due to intensified marketing activities. Proton plans to recapture market share through its upcoming fuel-efficient global small car (GSC) model, according to HLIB.

Sales of foreign brands like Audi also dropped significantly to only 328 units in 4QY14. This was due to cessation of full-tax exemption for completely built up (CBU) hybrid models, which came into effect from January 1 this year.

Meanwhile, Honda sales remained strong during the quarter, mainly due to the full-tax exemption for the Honda Jazz hybrid model, while its recently- launched City model had approximately 10,000 bookings within the first month.

Honda reported sales of 15,627 units, up 30.1% year-on-year.

HLIB said despite the weaker results expected for DRB-Hicom in 4QFY14, HLIB kept its “buy” call on DRB-Hicom shares with an unchanged target price of RM3.30.

“Nevertheless, we believe DRB is relatively undervalued given its valuable assets (concessions; bank; and properties) and the potential of automotive division (turnaround of Proton and Lotus; expansion of Honda and VW; and growth of Deftech),” said HLIB.