DRBHCOM: Banking Division Propels Earnings Beat Amidst Broader Weakness; Neutral Rating Maintained

A leading Malaysian conglomerate reported a significant increase in its second-quarter net profit for FY2025, largely driven by exceptional performance in its Banking division. The results surpassed analysts’ estimates, although the investment bank maintains its “Neutral” rating with an unchanged target price, citing persistent softness in other business segments.

Performance Review

For the second quarter of FY2025, the conglomerate posted a net profit of RM58.1 million, marking a substantial 227.8% increase quarter-on-quarter (QoQ). This performance brings the cumulative net profit for the first half of FY2025 to RM75.8 million. While these figures were within consensus expectations, they significantly exceeded the investment bank’s own estimates, reaching 50.7% and 59.4% of their respective full-year forecasts.

The outperformance was primarily attributed to the robust showing of the Banking division. Its profit before tax (PBT) more than tripled QoQ to RM103.1 million, benefiting from increased financing and investment income, alongside a reduction in impairment allowances due to improved recoveries. Overall revenue for 2QFY25 edged up 0.5% QoQ to RM4.1 billion, with the Banking division’s strong growth of 6.1% to RM555.6 million playing a key role in mitigating declines elsewhere.

In contrast, other core divisions experienced a weaker quarter. The Automotive segment’s PBT fell by 28.7% to RM111.5 million, impacted by lower revenue and margins amidst intense competition and the influx of foreign brands. The Postal, Services, and Property businesses continued to operate unprofitably, while the Defence & Aviation segment’s PBT remained flat.

Future Outlook and Challenges

The outlook for the automotive sector in Malaysia remains subdued for 2025. Following a record-breaking performance in 2024, the market is expected to normalise, creating a high-base effect. Significant headwinds are anticipated for the non-national passenger vehicle segment, including reduced consumer confidence, higher vehicle costs stemming from fuel subsidy rationalisation and inflationary pressures. The increasing presence of competitively priced Chinese automakers is also expected to intensify competition, further pressuring profitability and stifling earnings growth across the sector.

Given the mixed performance and the persistent weakness observed across the non-banking business divisions, the investment bank has opted to keep its forecasts unchanged. Consequently, the “Neutral” recommendation is maintained with an unchanged sum-of-parts (SOP) based target price of RM0.840.