Stock Name: PROTON
Company Name: PROTON HOLDINGS BHD
Research House: CIMB
Proton Holdings Bhd
(March 2, RM3.51)
Maintain neutral at RM3.58 with target price of RM4.50: Proton Holdings has entered into a memorandum of understanding (MoU) with Nissan Motor Corp which will pave the way for feasibility studies on specific areas of cooperation, including the potential use of Nissan's platform and power train. The feasibility studies will end on April 30, 2011, or upon execution of a legally binding agreement, whichever is earlier.
The announcement is a positive surprise to us. This was not disclosed, but we suspect that Proton's global entry car, Proton Emas, could be the basis for this partnership. It is no secret that Proton is aiming to roll out the global entry car, and management hinted earlier that it was in talks with a global original equipment manufacturer (OEM) to drive this initiative. Proton has set an ambitious target of 2012 for the roll-out of the car.
Press reports earlier indicated that Proton may attempt to enter the Indian market with a small car, which is underpinned by Nissan's small car platform that is used for Nissan March/Micra. It makes sense for Proton to tie up with a reputable OEM such as Nissan which has a ready platform that it can leverage on. Platform collaboration would not only speed up the product development-to-delivery process and quicken its expansion into new global markets such as India but should also lower the overall development cost of the model.
In fact, such tie-ups and platform sharing are not uncommon in the global auto industry. We gather that it would take about 17 to 24 months for the car to go into production, which means that the global entry car is likely to only hit the roads in 2H12, at the earliest.
Because of its sizeable auto market, India has long been on Proton's radar. It has been in talks with various parties to penetrate the Indian market since last year. But entry into India's competitive market will not be easy as major global makers have already established a presence in the country.
Nissan Motor Corp itself has an entrenched position in the market via the Nissan March, which is called the Micra in India. A tie-up with a reputable OEM like Nissan would definitely give Proton some mileage in export markets compared to entry into the market on its own.
This announcement inevitably raises questions on the impact of the potential Proton-Nissan collaboration on Tan Chong and Nissan's sales in Malaysia. Details on the extent of the tie-up are scarce and we will need to get further details from Proton and Tan Chong to better gauge the impact of this new development. But if Proton uses Nissan's small-car platform to develop its global small car, as indicated by earlier press reports, it could cannibalise the sales of Nissan March in Malaysia, which Tan Chong intends to bring in by this year, in completely-built-up (CBU) form.
But bear in mind that Proton's small car is likely to be released in FY12 at the earliest, which means that the Nissan March has at least one year of lead time.
Tan Chong plans to locally assemble another B-segment car next year, which we gather will be spun off the same small car platform. Platform sharing between Nissan and Proton could lower the overall small car platform cost, which should indirectly lower the cost of rolling out the B-segment car as well.
The MoU between Nissan and Proton is positive as it could pave the way for Proton to use Nissan's platform. This would reduce Proton's product development costs and could speed up the roll-out of new models.
But we do not expect the tie-up to yield immediate earnings as the global small car is only expected to be rolled out in 2012, at the earliest. Until then, concerns over Group Lotus's turnaround exercise are likely to prevail.
We maintain our 'neutral' call, pending further details from management on the non-binding MoU. Our target price of RM4.50 is unchanged, which is still based on a 10% premium over Proton's historical price-over-net-tangible-assets per share of 0.5 times. ' CIMB Research, March 2
This article appeared in The Edge Financial Daily, March 3, 2011.
Company Name: PROTON HOLDINGS BHD
Research House: CIMB
Proton Holdings Bhd
(March 2, RM3.51)
Maintain neutral at RM3.58 with target price of RM4.50: Proton Holdings has entered into a memorandum of understanding (MoU) with Nissan Motor Corp which will pave the way for feasibility studies on specific areas of cooperation, including the potential use of Nissan's platform and power train. The feasibility studies will end on April 30, 2011, or upon execution of a legally binding agreement, whichever is earlier.
The announcement is a positive surprise to us. This was not disclosed, but we suspect that Proton's global entry car, Proton Emas, could be the basis for this partnership. It is no secret that Proton is aiming to roll out the global entry car, and management hinted earlier that it was in talks with a global original equipment manufacturer (OEM) to drive this initiative. Proton has set an ambitious target of 2012 for the roll-out of the car.
Press reports earlier indicated that Proton may attempt to enter the Indian market with a small car, which is underpinned by Nissan's small car platform that is used for Nissan March/Micra. It makes sense for Proton to tie up with a reputable OEM such as Nissan which has a ready platform that it can leverage on. Platform collaboration would not only speed up the product development-to-delivery process and quicken its expansion into new global markets such as India but should also lower the overall development cost of the model.
In fact, such tie-ups and platform sharing are not uncommon in the global auto industry. We gather that it would take about 17 to 24 months for the car to go into production, which means that the global entry car is likely to only hit the roads in 2H12, at the earliest.
Because of its sizeable auto market, India has long been on Proton's radar. It has been in talks with various parties to penetrate the Indian market since last year. But entry into India's competitive market will not be easy as major global makers have already established a presence in the country.
Nissan Motor Corp itself has an entrenched position in the market via the Nissan March, which is called the Micra in India. A tie-up with a reputable OEM like Nissan would definitely give Proton some mileage in export markets compared to entry into the market on its own.
This announcement inevitably raises questions on the impact of the potential Proton-Nissan collaboration on Tan Chong and Nissan's sales in Malaysia. Details on the extent of the tie-up are scarce and we will need to get further details from Proton and Tan Chong to better gauge the impact of this new development. But if Proton uses Nissan's small-car platform to develop its global small car, as indicated by earlier press reports, it could cannibalise the sales of Nissan March in Malaysia, which Tan Chong intends to bring in by this year, in completely-built-up (CBU) form.
But bear in mind that Proton's small car is likely to be released in FY12 at the earliest, which means that the Nissan March has at least one year of lead time.
Tan Chong plans to locally assemble another B-segment car next year, which we gather will be spun off the same small car platform. Platform sharing between Nissan and Proton could lower the overall small car platform cost, which should indirectly lower the cost of rolling out the B-segment car as well.
The MoU between Nissan and Proton is positive as it could pave the way for Proton to use Nissan's platform. This would reduce Proton's product development costs and could speed up the roll-out of new models.
But we do not expect the tie-up to yield immediate earnings as the global small car is only expected to be rolled out in 2012, at the earliest. Until then, concerns over Group Lotus's turnaround exercise are likely to prevail.
We maintain our 'neutral' call, pending further details from management on the non-binding MoU. Our target price of RM4.50 is unchanged, which is still based on a 10% premium over Proton's historical price-over-net-tangible-assets per share of 0.5 times. ' CIMB Research, March 2
This article appeared in The Edge Financial Daily, March 3, 2011.
Mileage is an important factor for car buyers and most the new car buyers are seeking such model that can supply good and effective mileage. And if any such product is being sent by Nissan in the coming future, then I'll be one of its buyer.
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