DRB-HICOM BHD (DRBM:KL) gets lift from Proton

DRB-HICOM BHD (DRBM:KL) gets lift from Proton

DRB-HICOM BHD (DRBM:KL) gets lift from Proton

Because of the surge in tax bill to RM230.67 million, DRB-Hicom Bhd’s annual net profit came in substantially lower at RM122.87 million for the financial year ended March 31, 2019 (FY19) versus RM91.58 million in the preceding year.

However, for the fourth quarter ended March 31, 2019 (4QFY19), the diversified conglomerate posted a net profit of RM127.86 million — a contrast to a net loss of RM59.41 million in the previous corresponding quarter. Why the sharp improvement in quarterly earnings?

DRB-Hicom attributed the better performance to selling more cars during the quarter under review, particularly Proton cars.

This set of results has convinced more in the investing fraternity that its 50.1%-owned subsidiary Proton Holdings Bhd, which was once a bleeding centre, is now driving DRB-Hicom on a fast growth track.

The group’s share price went up 10 sen or 5.05% to RM2.08 last Friday after the release of the quarterly results.

According to an analyst who spoke on the condition of anonymity, so long as sales volumes for Proton’s cars are maintained or exceed current levels, DRB-Hicom is expected to remain profitable and profit growth is likely. There is a backlog of orders for the X70 sport utility vehicle.

In addition, he said the cost-cutting measures put in place at Proton and at a group level have materialised. This helps enhance DRB-Hicom’s profitability.

“While they (Proton) are not breaking even yet, the losses are a lot lower compared with previous quarters,” said the analyst.

He added that Proton car sales are expected to rise, as the group is also going to introduce new versions of its Iriz, Persona, and Exora models this year.

In a research note dated May 31, PublicInvest Research pointed out that Proton’s sales volume ballooned 42% year-on-year (y-o-y) to 18,281 units, while its sales value expanded 63% y-o-y to RM1.3 billion for FY19. Of the 30,000 X70 orders received in 4QFY19, 14,000 units have been delivered.

On top of that, better performances by Mitsubishi and Isuzu marques also helped lift the profit contribution from the joint venture in FY19.

PublicInvest Research maintained their “buy” call while raising their target price (TP) to RM2.30 from RM2.10 previously.

In contrast, Kenanga Research downgraded DRB-Hicom to “underperform” from “market perform”, with a lower TP of RM1.80, versus RM1.90 previously as the earnings figures came below its estimates.

DRB-Hicom posted a core net profit of RM183 million, which was substantially below Kenanga Research’s forecast of RM350.7 million for FY19. However, the market consensus estimate was RM100 million.

In a financial result review, Kenanga Research pointed out that Honda cars saw a decline of 6% to 100,290 units, as consumers were holding back in anticipation of newer models. “Honda only launched the facelift HR-V and the Mugen variants of the Honda Jazz and BR-V — in contrast with Proton who launched the X70, and is also planning to launch revamped versions of the Iriz, Persona and Exora,” it wrote.

However, not all segments in DRB-Hicom are doing well. The group’s 53.5%-owned subsidiary Pos Malaysia Bhd has turned into a loss contributor. It was once a key profit contributor when Proton was bleeding badly before. The postal group incurred annual net loss, raising some concerns.

In FY19, Pos Malaysia recorded its biggest annual loss yet against a net profit of RM93.25 million a year ago, despite just a 5% decline in revenue to RM2.36 billion from RM2.47 billion in the previous year.

This was Pos Malaysia’s first loss since FY08 — with 4QFY19 being the third quarterly consecutive loss the group experienced.

Hong Leong Investment Bank Research analyst Daniel Wong, however, does not think that the loss at Pos Malaysia is a big concern, noting that while significant on a company level, the losses do not have a significant impact on a group level.

“If you look at DRB-Hicom as a whole, Pos Malaysia is a small portion of the group,” said Wong, adding that the main reasons Pos Malaysia posted a quarterly net loss were due to one-off impairments and costs.

Wong explained DRB-Hicom’s other segments, such as Bank Muamalat Bhd and property business, would be able to soften the blow caused by the national postal group.

Another analyst commented that the losses stemming from Pos Malaysia have been priced into earnings estimates, and that Proton is the main priority due to its history of being the group’s biggest loss-making business.

Some analysts opine that DRB-Hicom’s 4QFY19 results are reason enough for investors to have a second look at the stock. Nonetheless, the cautious ones pointed out that the patchy economic growth outlook may not augur well for car sales.

Overall, the bias in prices is: Upwards.

The projected upper bound is: 2.22.

The projected lower bound is: 1.97.

The projected closing price is: 2.09.

Candlesticks

A white body occurred (because prices closed higher than they opened).
During the past 10 bars, there have been 4 white candles and 2 black candles for a net of 2 white candles. During the past 50 bars, there have been 21 white candles and 19 black candles for a net of 2 white candles.

Momentum Indicators

Momentum is a general term used to describe the speed at which prices move over a given time period. Generally, changes in momentum tend to lead to changes in prices. This expert shows the current values of four popular momentum indicators.

Stochastic Oscillator

One method of interpreting the Stochastic Oscillator is looking for overbought areas (above 80) and oversold areas (below 20). The Stochastic Oscillator is 42.2222. This is not an overbought or oversold reading. The last signal was a buy 14 period(s) ago.

Relative Strength Index (RSI)

The RSI shows overbought (above 70) and oversold (below 30) areas. The current value of the RSI is 54.84. This is not a topping or bottoming area. A buy or sell signal is generated when the RSI moves out of an overbought/oversold area. The last signal was a sell 25 period(s) ago.

Commodity Channel Index (CCI)

The CCI shows overbought (above 100) and oversold (below -100) areas. The current value of the CCI is 103.This is an overbought reading. However, a signal isn’t generated until the indicator crosses below 100. The last signal was a sell 2 period(s) ago.

MACD

The Moving Average Convergence/Divergence indicator (MACD) gives signals when it crosses its 9 period signal line. The last signal was a buy 3 period(s) ago.

Rex Takasugi – TD Profile

DRB-HICOM closed up 0.020 at 2.090. Volume was 9% below average (neutral) and Bollinger Bands were 3% wider than normal.

Open High Low Close Volume___
2.070 2.110 2.070 2.090 2,849,400

Technical Outlook
Short Term: Neutral
Intermediate Term: Bearish
Long Term: Bullish

Moving Averages: 10-period 50-period 200-period
Close: 2.01 2.07 1.97
Volatility: 47 39 40
Volume: 4,134,181 4,007,062 3,224,853

Short-term traders should pay closer attention to buy/sell arrows while intermediate/long-term traders should place greater emphasis on the Bullish or Bearish trend reflected in the lower ribbon.

Summary

DRB-HICOM is currently 6.1% above its 200-period moving average and is in an downward trend. Volatility is high as compared to the average volatility over the last 10 periods. Our volume indicators reflect moderate flows of volume into DRBM.KL (mildly bullish). Our trend forecasting oscillators are currently bearish on DRBM.KL and have had this outlook for the last 15 periods.

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