Proton Holdings Bhd (Oct 25, RM2.63)
Maintain hold with unchanged fair value: We maintain our “hold” rating on Proton with an unchanged fair value of RM2.60 per share based on 0.5 times adjusted FY12F net tangible assets of RM5.30 per share. Proton and Chinese auto company Hawtai Motor Group Ltd (Hawtai) have signed a memorandum of understanding (MoU) to explore collaboration in product development with the aim of expanding Proton’s presence in the Chinese market.
Proton and Hawtai will evaluate the establishment of a joint venture (JV) company in China to invest in joint new product development including joint design and development cost sharing. Proton says Hawtai is looking at manufacturing the Proton Exora MPV and the upcoming Proton P3-21A (Persona replacement set to debut in 2012) sedan in China. The two companies will explore the development of new models together in a later phase.
The JV will also be responsible for vendor sourcing and component development work with local Chinese vendors. This will hopefully allow Proton to tap into low-cost vendors in China and explore cross-supplying components from Malaysian vendors to China and vice versa. Beijing-based Hawtai can make about 200,000 vehicles, 300,000 engines and 300,000 automatic transmissions a year.
Since 2002, Hawtai has cooperated with Hyundai Motors to manufacture Chinese-market versions of the Hyundai Matrix, Hyundai Santa Fe and Hyundai Terracan. The JV ended late-2010 and it would appear Hawtai is in need of a new technology partner. Hawtai has repeatedly acquired foreign technologies, including engine and transmission technologies. Both of Hawtai’s sedan models use Mitsubishi’s 4G63 and 4G69 Mitsubishi innovative valve timing electronic control system (Mivec) engines. We do not rule out the Proton-MMC Bhd JV on engine development being involved with Hawtai if the Proton-Hawtai JV comes through.
We leave our forecasts unchanged at this juncture as details are still too sketchy. Feasibility studies will take three months before any deal is cemented. Additionally, the size of Proton’s stake in the JV is still unclear. Main positives will be in: (i) shared vehicle development cost which typically ranges between RM500 million and RM1 billion; and (ii) cost competitive component sourcing from China.
Over the next 12 months, Proton’s earnings prospects remain challenging given: (i) losses from the restructuring of Lotus; (ii) slowing domestic sales — Proton has no waiting list except for the Exora; and (iii) heavy price discounting as Japanese marques strive to regain market share. — AmResearch, Oct 25
This article appeared in The Edge Financial Daily, October 27, 2011.
Maintain hold with unchanged fair value: We maintain our “hold” rating on Proton with an unchanged fair value of RM2.60 per share based on 0.5 times adjusted FY12F net tangible assets of RM5.30 per share. Proton and Chinese auto company Hawtai Motor Group Ltd (Hawtai) have signed a memorandum of understanding (MoU) to explore collaboration in product development with the aim of expanding Proton’s presence in the Chinese market.
Proton and Hawtai will evaluate the establishment of a joint venture (JV) company in China to invest in joint new product development including joint design and development cost sharing. Proton says Hawtai is looking at manufacturing the Proton Exora MPV and the upcoming Proton P3-21A (Persona replacement set to debut in 2012) sedan in China. The two companies will explore the development of new models together in a later phase.
The JV will also be responsible for vendor sourcing and component development work with local Chinese vendors. This will hopefully allow Proton to tap into low-cost vendors in China and explore cross-supplying components from Malaysian vendors to China and vice versa. Beijing-based Hawtai can make about 200,000 vehicles, 300,000 engines and 300,000 automatic transmissions a year.
Since 2002, Hawtai has cooperated with Hyundai Motors to manufacture Chinese-market versions of the Hyundai Matrix, Hyundai Santa Fe and Hyundai Terracan. The JV ended late-2010 and it would appear Hawtai is in need of a new technology partner. Hawtai has repeatedly acquired foreign technologies, including engine and transmission technologies. Both of Hawtai’s sedan models use Mitsubishi’s 4G63 and 4G69 Mitsubishi innovative valve timing electronic control system (Mivec) engines. We do not rule out the Proton-MMC Bhd JV on engine development being involved with Hawtai if the Proton-Hawtai JV comes through.
We leave our forecasts unchanged at this juncture as details are still too sketchy. Feasibility studies will take three months before any deal is cemented. Additionally, the size of Proton’s stake in the JV is still unclear. Main positives will be in: (i) shared vehicle development cost which typically ranges between RM500 million and RM1 billion; and (ii) cost competitive component sourcing from China.
Over the next 12 months, Proton’s earnings prospects remain challenging given: (i) losses from the restructuring of Lotus; (ii) slowing domestic sales — Proton has no waiting list except for the Exora; and (iii) heavy price discounting as Japanese marques strive to regain market share. — AmResearch, Oct 25
This article appeared in The Edge Financial Daily, October 27, 2011.
