Stock Name: PROTON
Company Name: PROTON HOLDINGS BHD
Research House: MIDF
Proton Holdings Bhd
(Feb 28, RM3.86)
Upgrade to buy at RM4.09 with target price of RM5.20: Proton recorded a loss of RM60.1 million in 3QFY11 due to high marketing costs. Sales were also down by 1.6% year-on-year.
For FY11, the extent'' of marketing'' expenditure, costs associated with research and development and brand building at Lotus means that Proton will come short of our and consensus expectations. All these had been unexpected. We expect a better 4Q in FY11 with the improvement in domestic sales volume.
However, we are concerned that its earnings and balance sheet position may be eroded in view of Group Lotus's five-year'' turnaround plan.
We are lowering our FY11 earnings forecasts by 43% by imputing higher operating costs and losses at the overseas division. We are maintaining our FY12 numbers. ''
We expect overseas ventures and exports to gain traction in FY12. Proton's Indian venture is likely to be asset-light, which means it will be selling completely-knocked-down packs to the joint-venture partner which will assemble the vehicles in its own assembly plant. These include the Saga, Persona and Exora models. ''
In terms of new launches, Proton plans to release the turbo-charged Exora by end-2011, along with possible updates of its existing models.
We upgrade our recommendation to 'buy' from 'neutral'. Proton's share price has retraced to a level that we believe value is emerging. We are maintaining our target price at'' RM5.20 based on a price-earnings ratio of eight times FY12 earnings, and price to net tangible assets multiple of 0.4 times.
This implies a potential total return of 28.2%, including a dividend yield of 1.1% from the current price.
The positive rating on Proton is based on projected higher sales volume in FY12 and lower distribution and selling costs due to its ongoing cost rationalisation exercise.
We also took into account the firm's plant consolidation and venture into export markets. ' MIDF Research, Feb 28
This article appeared in The Edge Financial Daily, March 1, 2011.
Company Name: PROTON HOLDINGS BHD
Research House: MIDF
Proton Holdings Bhd
(Feb 28, RM3.86)
Upgrade to buy at RM4.09 with target price of RM5.20: Proton recorded a loss of RM60.1 million in 3QFY11 due to high marketing costs. Sales were also down by 1.6% year-on-year.
For FY11, the extent'' of marketing'' expenditure, costs associated with research and development and brand building at Lotus means that Proton will come short of our and consensus expectations. All these had been unexpected. We expect a better 4Q in FY11 with the improvement in domestic sales volume.
However, we are concerned that its earnings and balance sheet position may be eroded in view of Group Lotus's five-year'' turnaround plan.
We are lowering our FY11 earnings forecasts by 43% by imputing higher operating costs and losses at the overseas division. We are maintaining our FY12 numbers. ''
We expect overseas ventures and exports to gain traction in FY12. Proton's Indian venture is likely to be asset-light, which means it will be selling completely-knocked-down packs to the joint-venture partner which will assemble the vehicles in its own assembly plant. These include the Saga, Persona and Exora models. ''
In terms of new launches, Proton plans to release the turbo-charged Exora by end-2011, along with possible updates of its existing models.
We upgrade our recommendation to 'buy' from 'neutral'. Proton's share price has retraced to a level that we believe value is emerging. We are maintaining our target price at'' RM5.20 based on a price-earnings ratio of eight times FY12 earnings, and price to net tangible assets multiple of 0.4 times.
This implies a potential total return of 28.2%, including a dividend yield of 1.1% from the current price.
The positive rating on Proton is based on projected higher sales volume in FY12 and lower distribution and selling costs due to its ongoing cost rationalisation exercise.
We also took into account the firm's plant consolidation and venture into export markets. ' MIDF Research, Feb 28
This article appeared in The Edge Financial Daily, March 1, 2011.
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