DRBHCOM (1619) - AmInvestment sees turnaround for Proton in two years

AmInvestment sees turnaround for Proton in two years

KUALA LUMPUR: AmInvestment Bank Research is retaining its Buy call on DRB-Hicom, with an unchanged fair value of RM1.50 a share based on a price-to-book (P/B) ratio of 0.44 times.

It said on Wednesday at the current P/BV ratio, this was below its 10-year historical mean and five-year mean of 0.5 times and 0.6 times, respectively.

“The stock is undervalued and is trading at a historical low of 0.2 times FY16 P/B ratio, one standard deviation below the 10-year mean.

“Stripping out the automotive operations (including Proton), our sum-of-parts values the group at RM2.51 a share, comprising the defence arm Deftech, Bank Muamalat, Pos Malaysia, and its property segment,” it said.

AmInvestment said DRB-Hicom posted a core net loss of RM437mil in 4QFY16, leading to losses of RM581mil in FY16 – more than double our loss estimate of -RM201mil and consensus’ -RM138mil. It proposed the first and final dividend of two sen a share.

“Specifics were not made known, but the losses stemmed mainly from Proton, which sold only 93,718 units (-15% on-year) in FY16. Proton accounted for 51% or RM4.8bil of the automotive segment’s revenue. Proton was affected by the absence of launches, the Ringgit weakness, and higher finance and promotional costs amid stringent hire purchase financing.

“Management reaffirms a Proton turnaround plan within the next two years, with the support and monitoring of the government. For 2016, it will introduce three models – the Perdana, Persona and Saga – with an additional model via collaboration with Suzuki,” it said.

AmInvestment said the key risks continue to be at Proton. The car maker has previously said it aims to sell 100,000-150,000 units in 2016 (versus 102,175 units in 2015 – 17.3% PV market share), with the launch of four new models.

Its fair value was 40% below the SOP value. This has yet to factor in the theoretical possibility of a privatisation potential given the current steep discount to book or the potential of a spinning off of Proton, coupled with the possible entry of a foreign strategic equity partner in the latter.

DRBHCOM (1619) - AmInvestment sees turnaround for Proton in two years