Stock Name: PROTON
Company Name: PROTON HOLDINGS BHD
Proton Holdings Bhd
(Sept 22, RM 2.62)
Maintain sell with unchanged fair value of RM2: Proton announced that it is strengthening its collaboration with Mitsubishi Motors Corp (MMC) via the joint production of engines at Proton, contract assembly of Mitsubishi vehicles for the Asean market and the sharing of parts and components.
We see this deal benefiting both parties, boosting Proton's earnings on improved plant utilisation and allowing MMC to gain a firmer foothold in the Asean market. While the news is long-term positive, we are still bearish on Proton's near-term earnings outlook. Maintain 'sell' at an unchanged fair value of RM2.
Proton said it is strengthening its collaboration with MMC through: (i) the joint production of engines (likely at the under-utilised Tanjung Malim plant); (ii) contract assembly of Mitsubishi vehicles for the Asean market; (iii) sharing of parts and components between MMC's global small compact car due to be launched in March 2012 and Proton's upcoming compact car (likely to be sometime in 2013/14); and (iv) the provision of MMC's future technologies such as electric, plug-in hybrid and hybrid vehicle technology.
This strategic collaboration follows a previous collaboration with MMC in December 2008 in the form of a development agreement on a new vehicle model for Proton and a licence agreement (to rebadge the Lancer).
MMC has had difficulty penetrating the Asean market as its imported sedans are completely built-up, which make them relatively expensive when hefty excise duties are included. The tie-up, however, may give rise to some risk for Proton as it may lead to cannibalisation of its own products, as consumers may prefer the MMC brand (judging from the poor response to the Inspira).
On a more positive note, Proton would earn income from engine contract manufacturing and at the same time increase its plant utilisation. We see this deal as a win-win for both parties, unlike the earlier Inspira rebadging deal, which benefited MMC more. We wish to highlight that there is still risk that certain aspects of the tie-up may not materialise, although the chances of this happening are fairly slim given that the previous collaboration went smoothly. But then again, delays could still be likely.
Earlier this year, Proton said it had entered into a memorandum of understanding with Nissan to conduct feasibility studies on a possible cooperation on the use of Nissan's platform and power train. As management has not updated on the status of this potential tie-up, and in view of the latest MMC tie-up, we assume that the deal with Nissan may have hit a snag. ' OSK Research, Sept 22
This article appeared in The Edge Financial Daily, September 22, 2011.
Company Name: PROTON HOLDINGS BHD
| Research House: OSK | Price Call: SELL | Target Price: 2.00 |
Proton Holdings Bhd
(Sept 22, RM 2.62)
Maintain sell with unchanged fair value of RM2: Proton announced that it is strengthening its collaboration with Mitsubishi Motors Corp (MMC) via the joint production of engines at Proton, contract assembly of Mitsubishi vehicles for the Asean market and the sharing of parts and components.
We see this deal benefiting both parties, boosting Proton's earnings on improved plant utilisation and allowing MMC to gain a firmer foothold in the Asean market. While the news is long-term positive, we are still bearish on Proton's near-term earnings outlook. Maintain 'sell' at an unchanged fair value of RM2.
Proton said it is strengthening its collaboration with MMC through: (i) the joint production of engines (likely at the under-utilised Tanjung Malim plant); (ii) contract assembly of Mitsubishi vehicles for the Asean market; (iii) sharing of parts and components between MMC's global small compact car due to be launched in March 2012 and Proton's upcoming compact car (likely to be sometime in 2013/14); and (iv) the provision of MMC's future technologies such as electric, plug-in hybrid and hybrid vehicle technology.
This strategic collaboration follows a previous collaboration with MMC in December 2008 in the form of a development agreement on a new vehicle model for Proton and a licence agreement (to rebadge the Lancer).
MMC has had difficulty penetrating the Asean market as its imported sedans are completely built-up, which make them relatively expensive when hefty excise duties are included. The tie-up, however, may give rise to some risk for Proton as it may lead to cannibalisation of its own products, as consumers may prefer the MMC brand (judging from the poor response to the Inspira).
On a more positive note, Proton would earn income from engine contract manufacturing and at the same time increase its plant utilisation. We see this deal as a win-win for both parties, unlike the earlier Inspira rebadging deal, which benefited MMC more. We wish to highlight that there is still risk that certain aspects of the tie-up may not materialise, although the chances of this happening are fairly slim given that the previous collaboration went smoothly. But then again, delays could still be likely.
Earlier this year, Proton said it had entered into a memorandum of understanding with Nissan to conduct feasibility studies on a possible cooperation on the use of Nissan's platform and power train. As management has not updated on the status of this potential tie-up, and in view of the latest MMC tie-up, we assume that the deal with Nissan may have hit a snag. ' OSK Research, Sept 22
This article appeared in The Edge Financial Daily, September 22, 2011.
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