June 24, 2010

PROTON - New plan signals Proton's intention to hold on to Lotus

Stock Name: PROTON
Company Name: PROTON HOLDINGS BHD
Research House: MIDF

Proton Holdings Bhd
(June 23, RM4.75)
Maintain buy at RM4.69 with a target price of RM5.80
: Proton has unveiled a new business plan to make Group Lotus profitable within five years. One of the key points in the plan is that Proton will work with Lotus to produce small global cars based on its EMAS concept car first shown at the recent Geneva International Motor Show 2010. That platform will produce a five-door compact car for the Asias and Middle Eastern markets and a three-door sports car made by Lotus for the global market. The cars can be developed within 18 to 24 months.

Having highly experienced and able personnel is key to the success of this five-year plan and on paper at least, the ensemble looks very promising. Proton has a new CEO in Danny Bahar, former senior vice-president of commercial and brand'' for Ferrari, where he was responsible for worldwide road car sales and after-sales business, overall road car and F1 marketing activities, licensing and merchandising'' business. He is also credited with the establishment of Red Bull Racing and Scuderia Toro Rosso in Formula One. Other key personnel are highly experienced executives who have worked for established car companies such as Ferrari, Porsche, Aston Martin and Fiat.

We do not expect much change in Proton's business fundamentals in the medium term at least, thus no change was made to our recommendation on Proton. Should the business plan gain momentum in the next few years, more commitment will be asked of Proton, especially in terms of funding, which we do not expect to be much of a burden.

Establishing a brand in the highly competitive car market is a very challenging task. Thus, we expect Proton to continue to hold on its prized asset despite buy offers from other companies. Lotus is a well-established marque with a strong automotive history, which makes the investment a good one. The cost to acquire 100% of Lotus was about RM493 million. We maintain a buy, with our target price unchanged at RM5.80 per share and pegged at 10 times FY2011 earnings or 0.5 times its estimated PBV for FY2011. ' MIDF Research, June 23


This article appeared in The Edge Financial Daily, June 24, 2010.




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