DRBHCOM: Core Earnings Outperform on Efficiency Gains Amidst Subdued Outlook

A major conglomerate reported a net loss of RM15.2 million for the third quarter of FY25, a wider loss compared to RM5.3 million in the corresponding period last year. This reported loss was primarily attributable to a RM22.3 million loss from the disposal of investment securities, a non-recurring item. Excluding this, the company’s core net profit significantly improved to RM7.1 million, rebounding from a core loss of RM5.3 million in 3QFY24.

This strong core performance led to a cumulative core net profit of RM94.1 million for 9MFY25. The results were within the investment bank’s estimates and substantially exceeded consensus forecasts, representing 73.7% and 82.6% of their respective full-year projections.

Performance Review

Revenue for 3QFY25 saw an 8.6% year-on-year increase to RM4.5 billion, driven by robust performance across all business sectors. The Automotive division was a key contributor, growing 10.2% year-on-year to RM3.16 billion, mainly due to a 5.9% increase in sales volume from its PROTON marque. However, this was partially offset by a 19.3% decline in sales from other marques.

The Banking division’s revenue marginally increased by 1.6% to RM563.7 million, supported by higher financing volumes from an expanding customer base. The Postal division also reported a 13.5% revenue increase to RM451.3 million, boosted by higher parcel volumes and growth in cargo and in-flight catering activities.

Profit Before Tax (PBT) improved significantly by 41.2% year-on-year to RM64.7 million, primarily driven by enhancements in the Automotive and Banking segments. The Automotive segment’s PBT surged 28.5% year-on-year to RM131.7 million, attributed to higher sales and improved margins. Similarly, the Banking segment’s PBT grew 46.2% year-on-year to RM51.2 million, fueled by higher financing income and effective cost management initiatives. These gains were, however, partly offset by losses from other business segments, including Defence & Aviation, Postal, and Property.

Future Outlook and Analyst View

Despite the strong core earnings, the outlook remains somewhat subdued. Following a record-breaking 2024, Malaysia’s auto sector is expected to normalize in 2025. While the mass-market segment is anticipated to remain stable, the non-national segment faces challenges from weakened consumer confidence, rising vehicle costs, fuel subsidy reforms, and inflation. The increasing influx of competitively priced Chinese brands is also expected to intensify competition, potentially squeezing profitability and limiting earnings growth.

Analysts at Public Investment Bank have kept their forecasts unchanged. However, following a recent share price rally, the current valuation appears stretched. Consequently, the investment bank downgraded its rating from Neutral to Underperform, with an unchanged sum-of-parts (SOP) based target price of RM0.84.