Stock Name: PROTON
Company Name: PROTON HOLDINGS BHD
Company Name: PROTON HOLDINGS BHD
| Research House: OSK | Price Call: HOLD | Target Price: 5.50 |
Proton dipped back into the red amid weak domestic sales andpersistent losses from Lotus. The immediate-term outlook will remain weak inview of the tighter lending measures imposed by the central bank. Aftertrimming our revenue forecast on the back of the deteriorating vehicle salesoutlook, we now project that Proton will continue to be loss making for twoconsecutive years. With DRB Hicom's takeover price of RM5.50 in place, wemaintain our NEUTRAL rating on the stock.
Low sales exacerbate losses. With the number ofvehicles sold hitting only 34,218 units (q-o-q: -12.7%, y-o-y: -7.4%, YTD: -2.9%), its lowest level since 1QFY09, the nationalcar manufacturer took a sharp hit on its topline (q-o-q: -36.7%, y-o-y: -21.9%, YTD: -6.8%). With Lotus still mired in losses (albeit narrowed to RM36.7m this quarter fromRM130m in the previous quarter), Proton saw its first set of losses for the yearamounting to RM88.2m. For the year, 9M YTD losses stood at RM68.1m vs our and consensus full-year net profitestimates of RM60.8-RM64.5m. Similarly, its revenue missed our estimate by 15%,which could be attributed to thedeclining export market volume.
Cutting estimates.Following its 3Q loss, we expect Proton to sink into the red for two years in arow. We now forecast a net loss of RM86m after revising our FY12 revenue down by 7%, noting that vehicle sales will remain under pressure owing to the sharp decline in hire purchaseapproval rates. Effective from 1Jan 2012, Bank Negara Malaysiaimplemented a debt service ratio based on net income instead of gross income thatall banks must follow. This new rulingby the central bank has led to a sharp deterioration in approval rates, ofwhich the Proton dealership association estimates to have dropped to 30% from 48%. For FY13, wehave toned down our profit forecast by 18%.
Synergy with DRB?While we have yet to obtain any further details on DRB's plan for Proton, wereckon that any synergies for Proton would largely depend on whether DRB canbring Volkswagen into the picture andthereby, boosting the utilization rateof its Tanjung Malim plant. Note that Proton's earlier immediate-termplans, i.e. tie-ups with Mitsubishi and Hawtai, have been put on hold pendingthe takeover move by DRB.
Maintain NEUTRAL.With DRB Hicom's takeover price of RM5.50 in place, we maintain our NEUTRALrating on the stock.
Source: OSK188
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