Company Name: PROTON HOLDINGS BHD
Research House: MIDF
Proton Holdings Bhd
(April 14, RM3.25)
Maintain buy at RM3.36 with target price of RM5.20: It was reported that Proton's 100%-owned Group Lotus will sign a syndicated financing deal with six lenders ' CIMB Group Holdings Bhd, Malayan Banking Bhd, Oversea-Chinese Banking Corp, Eon Capital Bhd, Exim Bank and Affin Holdings Bhd. The deal is to be concluded in April. There are no details on the amount agreed.
Recall that Group Lotus has allocated an investment fund of ''480 million (RM2.4 billion) for its five-year turnaround plan. The investment is to be spent on product development, upgrading existing production facilities and a revamp of the dealer network. The funding will be sourced from Proton as well as externally. Group Lotus will start its production of five new models ' Esprit, Elite, Elise, Eterne and Ethos ' in 2012. These new models are to be released from end-2013 onwards. It was noted that Group Lotus would need to increase its unit sales to 8,000 from 2,000 Lotus vehicles per year in order to break even on this investment.
Proton's cash pile has depleted to RM969.3 million (RM1.76 per share) as at end-December 2010, from RM1.6 billion (RM3 per share) as at end-March 2010, reflecting the channelled cash outflow on the Lotus turnaround plan. We expect that over'' the next few years, its capital expenditure will be about RM800 million to RM1 billion per year, including capex for Group Lotus and domestic R&D. Proton is likely to be in need of debt. If we were to'' assume a manageable debt-to-equity ratio of 0.3 times, Proton could raise up to RM1.6 billion to fund its capex spending.
We are neutral on this pending full details of the agreement. We reiterate our 'buy' recommendation with a target price of RM5.20 based on a price-earnings ratio of eight times FY12F earnings and a price-to-net tangible assets ratio of 0.4 times. The stock implies a potential total return from the current price of 55.9%, including dividend yield of 1.1%. ' MIDF Research, April 14
This article appeared in The Edge Financial Daily, April 15, 2011.