Proton Holdings Bhd (Nov 30, RM3.04)
Maintain neutral with higher target price of RM3.45 (from RM3.05): Higher taxes were the main reason Proton’s annualised earnings for 1HFY12 ended Sept 30 were just 53% of our forecast and 44% of market expectations.
Group Lotus’ losses continued to drag down earnings but the risks posed by its five-year turnaround plan are already largely priced in.
We cut our FY12/FY13 earnings per share for higher tax assumptions but raise our target price as we now peg it to 0.5 times price-to-book value (P/BV) (10% discount to historical P/BV instead of 20%). We remain “neutral” on the stock.
Despite a 1% dip in 1HFY12 revenue due to a similar decline in vehicle sales, Proton’s earnings before interest and tax (Ebit) plunged 70% as Group Lotus’ operating loss almost tripled to RM130 million from RM50 million in 1HFY11 as a result of higher restructuring and marketing costs.
Even the domestic operations saw a 28% decline in Ebit in 1HFY12 due partly to lower vehicle sales, provisions for ageing stock and higher customer acquisition costs.
1HFY12 results were further skewed by a higher effective tax rate of 58% ( against 19% in 1HFY11) due to the absence of tax credits from its subsidiaries’ losses. As a result, net profit plummeted 87%.
Relative to UMW Toyota, Honda Malaysia and Tan Chong, Proton is much less affected by the Thai floods. It should also be relatively unperturbed by the strengthening of the US dollar. While it does import components in US dollars, we gather that Proton is a net recipient of US dollars.
The weak results partly reflected in the share price. We are raising our target price to RM3.45 from RM3.05 after narrowing the discount that we attach to Proton’s historical P/BV to 10% from 20% to reflect the possibility of an entry of a strategic shareholder.
Proton’s financial performance remains weak due to Group Lotus but we think that this is partly reflected in Proton’s share price which has fallen 29% year-to-date compared with 4% for the FBM KLCI.
Expectations for the stock are low and positive news could catalyse its share price. — CIMB Equities Research, Nov 30
This article appeared in The Edge Financial Daily, December 1, 2011.
Maintain neutral with higher target price of RM3.45 (from RM3.05): Higher taxes were the main reason Proton’s annualised earnings for 1HFY12 ended Sept 30 were just 53% of our forecast and 44% of market expectations.
Group Lotus’ losses continued to drag down earnings but the risks posed by its five-year turnaround plan are already largely priced in.
We cut our FY12/FY13 earnings per share for higher tax assumptions but raise our target price as we now peg it to 0.5 times price-to-book value (P/BV) (10% discount to historical P/BV instead of 20%). We remain “neutral” on the stock.
Despite a 1% dip in 1HFY12 revenue due to a similar decline in vehicle sales, Proton’s earnings before interest and tax (Ebit) plunged 70% as Group Lotus’ operating loss almost tripled to RM130 million from RM50 million in 1HFY11 as a result of higher restructuring and marketing costs.
Even the domestic operations saw a 28% decline in Ebit in 1HFY12 due partly to lower vehicle sales, provisions for ageing stock and higher customer acquisition costs.
1HFY12 results were further skewed by a higher effective tax rate of 58% ( against 19% in 1HFY11) due to the absence of tax credits from its subsidiaries’ losses. As a result, net profit plummeted 87%.
Relative to UMW Toyota, Honda Malaysia and Tan Chong, Proton is much less affected by the Thai floods. It should also be relatively unperturbed by the strengthening of the US dollar. While it does import components in US dollars, we gather that Proton is a net recipient of US dollars.
The weak results partly reflected in the share price. We are raising our target price to RM3.45 from RM3.05 after narrowing the discount that we attach to Proton’s historical P/BV to 10% from 20% to reflect the possibility of an entry of a strategic shareholder.
Proton’s financial performance remains weak due to Group Lotus but we think that this is partly reflected in Proton’s share price which has fallen 29% year-to-date compared with 4% for the FBM KLCI.
Expectations for the stock are low and positive news could catalyse its share price. — CIMB Equities Research, Nov 30
This article appeared in The Edge Financial Daily, December 1, 2011.
