Stock Name: PROTON
Company Name: PROTON HOLDINGS BHD
Proton Holdings Bhd
(Aug 18, RM3.15)
Maintain underperform at RM3.15 with fair value of RM3: We expect Proton to report lower 1QFY12 earnings on a year-on-year (y-o-y) basis (1QFY11: RM84.7 million). Although Proton's domestic sales volume for the quarter to June (1QFY12) was up 0.9% y-o-y to 40,353 units, earnings are likely to be dragged lower by expenses associated with the ongoing turnaround programme (LTP) at 100%-owned Lotus Group.
The programme budgeted at ''480 million (RM2.4 billion), involves the rationalisation of its dealer network, rebranding, expansion of production facilities and investment in five new models that will be gradually introduced from 2013.
The receipt and recognition of R&D grants could skew earnings for the quarter as well. Recall Proton reported FY11 net profit of RM152.1 million after recognising R&D grants totalling RM222 million for the year. Note that our forecasts exclude R&D grant income.
Although domestic registrations fell 10.1% quarter-on-quarter (q-o-q), Proton generally fared better than Perusahaan Otomobil Kedua Sdn Bhd (Perodua) and other non-national marques during the quarter. The Japan earthquake and tsunami left Proton relatively unscathed although sales of the Inspira (a rebadged Mitsubishi Lancer) declined 44.5% q-o-q to 1,900 units.
Key metrics to look out for in the results announcement include: (i) consolidated losses at Lotus Group; (ii) R&D grant income accreted; (iii) export sales volumes; and (iv) gross cash and gross debt. The latter will give an indication as to the pace of drawdown of the ''270 million syndicated loan by Lotus. No dividend is expected as Proton continues to prioritise the conservation of cash.
The upside risks include: (i) higher-than-expected domestic car sales; (ii) favourable exchange rate movements; and (iii) A quicker than expected turnaround at Lotus.
Our forecasts are unchanged. Proton's FY12 domestic sales volumes are expected to stay relatively flat y-o-y. The Exora Turbo MPV has been delayed till end-2011 while the Persona replacement is slated for launch in 1Q12.
We maintain our 'underperform' call on Proton and reiterate our fair value of RM3 (0.3 times CY12 book value of equity per share). The multi-year LTP is a significant risk for Proton, being predicated on sufficiently strong domestic earnings to maintain cash flows, combined with a favourable macroeconomic environment when Lotus begins its launch programme in 2013 with the Esprit.
The lack of clarity on the financial implications of the LTP on Proton will also continue to cloud investor sentiment. ' RHB Research, Aug 18
This article appeared in The Edge Financial Daily, August 19, 2011.
Company Name: PROTON HOLDINGS BHD
| Research House: RHB | Price Call: SELL | Target Price: 3.00 |
Proton Holdings Bhd
(Aug 18, RM3.15)
Maintain underperform at RM3.15 with fair value of RM3: We expect Proton to report lower 1QFY12 earnings on a year-on-year (y-o-y) basis (1QFY11: RM84.7 million). Although Proton's domestic sales volume for the quarter to June (1QFY12) was up 0.9% y-o-y to 40,353 units, earnings are likely to be dragged lower by expenses associated with the ongoing turnaround programme (LTP) at 100%-owned Lotus Group.
The programme budgeted at ''480 million (RM2.4 billion), involves the rationalisation of its dealer network, rebranding, expansion of production facilities and investment in five new models that will be gradually introduced from 2013.
The receipt and recognition of R&D grants could skew earnings for the quarter as well. Recall Proton reported FY11 net profit of RM152.1 million after recognising R&D grants totalling RM222 million for the year. Note that our forecasts exclude R&D grant income.
Although domestic registrations fell 10.1% quarter-on-quarter (q-o-q), Proton generally fared better than Perusahaan Otomobil Kedua Sdn Bhd (Perodua) and other non-national marques during the quarter. The Japan earthquake and tsunami left Proton relatively unscathed although sales of the Inspira (a rebadged Mitsubishi Lancer) declined 44.5% q-o-q to 1,900 units.
Key metrics to look out for in the results announcement include: (i) consolidated losses at Lotus Group; (ii) R&D grant income accreted; (iii) export sales volumes; and (iv) gross cash and gross debt. The latter will give an indication as to the pace of drawdown of the ''270 million syndicated loan by Lotus. No dividend is expected as Proton continues to prioritise the conservation of cash.
The upside risks include: (i) higher-than-expected domestic car sales; (ii) favourable exchange rate movements; and (iii) A quicker than expected turnaround at Lotus.
Our forecasts are unchanged. Proton's FY12 domestic sales volumes are expected to stay relatively flat y-o-y. The Exora Turbo MPV has been delayed till end-2011 while the Persona replacement is slated for launch in 1Q12.
We maintain our 'underperform' call on Proton and reiterate our fair value of RM3 (0.3 times CY12 book value of equity per share). The multi-year LTP is a significant risk for Proton, being predicated on sufficiently strong domestic earnings to maintain cash flows, combined with a favourable macroeconomic environment when Lotus begins its launch programme in 2013 with the Esprit.
The lack of clarity on the financial implications of the LTP on Proton will also continue to cloud investor sentiment. ' RHB Research, Aug 18
This article appeared in The Edge Financial Daily, August 19, 2011.
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