KUALA LUMPUR: PublicInvest Research keeps 'outperform' call on DRB-Hicom Bhd with a target price of RM3.20 on expectation of future earnings growth.
"DRB-Hicom Bhd (DRB) reported Q1 FY15 revenue of RM3.72 billion and net profit of RM107.8 million. Excluding key non-operational items, its core net profit of RM83.7 million was broadly in line with our and market expectations.
"DRB's Q1 earnings were lifted by higher AV8 armoured vehicle project contribution, inclusion of Composite Technology Research Malaysia Sdn Bhd (CTRM) earnings and strong performance from its 34 per cent-owned associate, Honda Malaysia.
"Its services division maintained its steady performance, in particular Alam Flora, KL Airport Services and Bank Muamalat. We believe DRB offers an attractive risk-reward proposition at current price level (near 52-week low)," said PublicInvest in its report today.
PublicInvest said despite on-going challenges at Proton, DRB's automotive division registered a healthy pre-tax profit of RM120 million
"This was mainly due to higher percentage of AV8 armoured carrier project completion; increased contribution from acquired CTRM; and strong sales from Honda Malaysia with launch of new Honda City in March.
"In addition, we estimate losses from Lotus have narrowed with continued improvement in sales of 505 units in Q1.
"Going forward, DRB's defence segment is expected to improve its contribution and will offset any potential weakness in Proton."
PublicInvest noted the stable performance in services division, but weaker PAC performance.
"Its services division recorded higher revenue of RM780.5 million mainly due to newly-acquired Konsortium Logistik Bhd and pre-tax profit of RM110.4 million due to Uni.Asia Life disposal gain in Q4 of FY 2014.
"Its property, asset & construction (PAC) division recorded weaker revenue of RM60.3 million due to Tebrau land disposal in Q4) and pre-tax profit of RM5.1 million with lower property projects earnings.
"Looking forward, its services division will continue its stable performance anchored by Bank Muamalat and concession businesses, but its PAC performance will hinge on the timing of its property projects launches."
PublicInvest believes near-term re-rating catalyst for DRB will be the launching of Proton's global small car (GSC) at end-September.
"There will be several variants such as 1.3-litre & 1.6-litre of the B-segment hatchback which will compete with Perodua Myvi."