CGS-CIMB Securities Sdn Bhd maintained the ‘add’ recommendation to DRB-Hicom BHD with an unchanged target price (TP) of RM2.35.
The valuation is based on better-than-expected sales volume by Proton Holdings Bhd, revenue generation at Pos Malaysia Bhd and potential profit from the sale of land bank assets and hospitality as a catalyst for potential improvement.
However, the firm stated that the losses incurred by Pos Malaysia, the declining delivery volume by Proton and the supply chain disruption due to Covid-19 were declining risks to the company.
In its research note today, CGS-CIMB expects DRB-Hicom to expect Proton to maintain its positive sales momentum in the fourth quarter of 2020 following sales tax exemptions and the launch of a new model.
"The company has received a warm response to the Proton X50 and Honda City with both receiving more than 30,000 and 9,000 orders. Proton is increasing production and aims to produce 3,500 to 4,000 X50 units per month and 2,500 to 3,000 X70 units per month at its factory in Tanjung Malim this month, "he said.
In addition, the company's automotive manufacturing and engineering division expects stronger component demand by financial year 2021, driven by higher sales by Proton, Perodua and Honda.
"Furthermore, DRB-Hicom has started installing multi-purpose vehicles, Mitsubishi Xpander in Pekan, Pahang and is trying to produce about 6,000 units a year," he said.
According to CGS-CIMB, Proton's transformation is on the right track following the national car manufacturer's target to reach 30% of the domestic market by 2027, compared to its current stock market of 21% last October.
