DRB-Hicom to see narrowing losses in coming quarters as Proton beefs up
KUCHING: Despite DRB-Hicom’s first 12 months of 2017 (12M17) core losses coming in below estimates, analysts are expecting losses to be narrowed in subsequent quarters.
As per a statement on Bursa Malaysia, DRB-Hicom announced that the group had trimmed its pre-tax loss for the year ended March 31, 2017 to RM222.18 million, compared to RM822.13 million the previous year.
DRB-Hicom’s 12M17 core losses of RM732.5 million appeared to be below the research arm of Kenanga Investment Bank Bhd’s (Kenanga Research) expectations, compared to its full-year net loss forecasts of RM82 million and consensus loss of RM297 million.
“However, we expect losses to be narrowed in subsequent quarters in anticipation of better car sales on the back of improving consumer sentiment,” Kenanga Research said.
According to Kenanga Research, the recently announced binding heads of agreement with Geely as Proton’s strategic partnership put DRB-Hicom on a better footing.
While Geely is more popularly known for its successful acquisition of Volvo, the research arm was sceptical on its ability to assist Proton from a technical and marketing perspective as well as to penetrate new markets given that Geely is also a relatively weak brand from a global perspective with a global market share of less than five per cent.
“Proton still has to deal with the challenges posed by increasing competition and a weak brand perception,” the research arm said.
“The outlook for DRB-Hicom remains challenging given the tough operating environment of lower sales of motor vehicles amidst stiff competition.”
Overall, Kenanga Research kept its FY18E and FY19E earning forecasts unchanged.
Kenanga Research also reiterated ‘market perform’ on DRB-Hicom but its target price was trimmed slightly lower from RM1.75 per share to RM1.65 per share.
The research arm said that this was due to concern over execution risk in the new partnership in reviving Proton over the longer term.