Stock Name: PROTON
Company Name: PROTON HOLDINGS BHD
Research House: MAYBANK
Proton Holdings Bhd
(May 27, RM4.67)
Maintain buy at RM4.44 with revised target price of RM5.90 (from RM5): We remain buyers of Proton with a higher target price of RM5.90 (+18%) as we lift FY11-12 earnings by 18%-20%. Operations and financials are improving whilst valuations are inexpensive. Strategic alliance(s) with reputable global original equipment manufacturers (OEM) maker(s) (VW, Renault, and Mitsubishi) is a key re-rating catalyst. Buy.
Core net profit of RM76 million (+112% quarter-on-quarter) in 4QFY10, on the back of higher revenue (+12% q-o-q) and earnings before interest and tax (Ebit) margin (+2.2 percentage points q-o-q) was ahead of our expectations. The underlying strength came mainly from higher vehicle sales (+11%) and lower operating (selling, distribution, administration and overheads) costs (-10% q-o-q to RM7,842 per unit).
Domestic operations led growth, 99% of Group Ebit (+218% q-o-q; margin: +2.8 percentage points q-o-q). Domestic vehicle sales totalled 38,781 units in 4Q (+7% q-o-q) whilst overseas unit sales grew a higher 47% q-o-q (8,061 units). However, overseas Ebit contracted 88% q-o-q, which we suspect was affected by higher advertising and promotion spending. Elsewhere, Proton recognised a one-off loss of RM53 million (nett) in 4Q.
Balance sheet continues to strengthen, with tighter inventory management (-2% q-o-q), which resulted in a stockholding period of just one month. This also helped net cash to grow to RM1.4 billion as at March 2010 (+8% q-o-q), equivalent to RM2.59 per share. No final dividend was declared.
FY11-12 core net profit is raised by 18%-20% as Proton reaps benefits of economies of scale and ongoing cost-cutting measures. Its best selling models (ie Saga, Persona and Exora) will continue to drive sales in FY11. The new Waja replacement model will be introduced by 2HFY11 together with some new variants of existing models. Proton will most likely consolidate its production facilities in Tanjung Malim, Perak and dispose of its Shah Alam land.
Raising target price to RM5.90, as we change our valuation methodology to 12 times FY11 EPS (from 0.5 times book). Proton offers excellent value with multiple key re-rating catalysts. We do not rule out strategic tie-up(s) with global OEM automakers (ie VW, Renault, Mitsubishi). ' Maybank Investment Bank Bhd, May 27
This article appeared in The Edge Financial Daily, May 27, 2010.
Company Name: PROTON HOLDINGS BHD
Research House: MAYBANK
Proton Holdings Bhd
(May 27, RM4.67)
Maintain buy at RM4.44 with revised target price of RM5.90 (from RM5): We remain buyers of Proton with a higher target price of RM5.90 (+18%) as we lift FY11-12 earnings by 18%-20%. Operations and financials are improving whilst valuations are inexpensive. Strategic alliance(s) with reputable global original equipment manufacturers (OEM) maker(s) (VW, Renault, and Mitsubishi) is a key re-rating catalyst. Buy.
Core net profit of RM76 million (+112% quarter-on-quarter) in 4QFY10, on the back of higher revenue (+12% q-o-q) and earnings before interest and tax (Ebit) margin (+2.2 percentage points q-o-q) was ahead of our expectations. The underlying strength came mainly from higher vehicle sales (+11%) and lower operating (selling, distribution, administration and overheads) costs (-10% q-o-q to RM7,842 per unit).
Domestic operations led growth, 99% of Group Ebit (+218% q-o-q; margin: +2.8 percentage points q-o-q). Domestic vehicle sales totalled 38,781 units in 4Q (+7% q-o-q) whilst overseas unit sales grew a higher 47% q-o-q (8,061 units). However, overseas Ebit contracted 88% q-o-q, which we suspect was affected by higher advertising and promotion spending. Elsewhere, Proton recognised a one-off loss of RM53 million (nett) in 4Q.
Balance sheet continues to strengthen, with tighter inventory management (-2% q-o-q), which resulted in a stockholding period of just one month. This also helped net cash to grow to RM1.4 billion as at March 2010 (+8% q-o-q), equivalent to RM2.59 per share. No final dividend was declared.
FY11-12 core net profit is raised by 18%-20% as Proton reaps benefits of economies of scale and ongoing cost-cutting measures. Its best selling models (ie Saga, Persona and Exora) will continue to drive sales in FY11. The new Waja replacement model will be introduced by 2HFY11 together with some new variants of existing models. Proton will most likely consolidate its production facilities in Tanjung Malim, Perak and dispose of its Shah Alam land.
Raising target price to RM5.90, as we change our valuation methodology to 12 times FY11 EPS (from 0.5 times book). Proton offers excellent value with multiple key re-rating catalysts. We do not rule out strategic tie-up(s) with global OEM automakers (ie VW, Renault, Mitsubishi). ' Maybank Investment Bank Bhd, May 27
This article appeared in The Edge Financial Daily, May 27, 2010.
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