Proton Holdings - UNDERPERFORM - 12 March 2012

Stock Name: PROTON
Company Name: PROTON HOLDINGS BHD

Research House: KENANGA

Price Call: SELL

Target Price: 3.11

We did a test-drive of Proton's upcoming new C segment sedancodenamed P321A last Friday. This new replacement model, which is expected tobe launched next month, will be priced slightly higher than the existingPersona model. Although the price of the P321A is slightly more expensive, itsnew features such as 1.6L turbo engine, stronger body frame via HPF, paddleshifter and others are still  likely appealto both family and young car buyers alike in our view. We actually expectbetter sales for Proton from the P321A, what with its enhanced features above.That  said, we are still recommending an'Accept Offer @ RM5.50' (with implied PNTA of 0.9x) for the stock based on  our Target Price of just RM3.11 (0.5x P/NTAFY12 NTA/share). Our UNDERPERFORM call is also retained. 

P321A test drive.  We test drove the upcoming new C segment sedancodenamed P321A, which will replace the Proton Persona, last Friday. The newmodel is expected to be launched in April 2012 and will be priced slightlyhigher than the existing Persona model. We understand that it is a familysedan, targeting married male in the late 20s to 40s who are looking for anadditional car and a replacement car, as well as targeting medium to highhousehold income of RM5,000 to RM8,000 per month. In addition, Proton is alsotargeting single young professionals or executives who prefer sporty andperformance cars with the P321A.

The features.  The P321A has an enhanced safety feature withfour airbags. Apart from that, its body frame has also been strengthened via aprocess called Hot Press Forming  (HPF).This new high technology process is the first in Malaysia and South East Asia.The car can withstand a force of 1,500 mega Pascal. On the engine part, itcomes with a 1.6L Charged Fuel Efficiency (CFE) engine, which can beturbocharged to match 1.8L to  2.0L performance.Together with the engine, it has the Continuous Variable Transmission (CVT)technology which allows the car to change gear ratios seamlessly, eliminatingtransmission shock and facilitating a greater responsiveness and a smoothconsistent power delivery. The car also offers three driving modes namelyeconomy mode, sport mode and SAT mode to suit the driver's preference and feel. 

Worth buying? Althoughthe price of the P321A is slightly more expensive, its new features such as the1.6L turbo engine, stronger body frame via HPF, shift lever with tiptronicmodeand paddle shifteras well as its spacious 508L boot space that can normally be foundin higher range cars. Therefore, it is likely to appeal to both family andyoung car buyers alike in our view. We,in fact, expect better sales for Protonfrom the P321A with its new enhanced features and we believe its lower pricetag comparatively may hive off some market shares from its fellow competitorsin the segment (such as Vios and City). 

Valuation. Weare, however, maintaining our earnings, and target price of RM3.11 for Protonbased on a historical PNTA of 0.5x on its FY12 NTA/share. Our UNDERPERFORMrecommendation on Proton is also maintained. Until further clarity unfolds viathe offer document (no tentative date as yet), our current recommendation forinvestors for the stock is still to 'Accept Offer @ RM5.50' (with implied PNTAof 0.9x) based on our lower target price and UNDERPERFORM call above.

Source: Kenanga