Tuesday, March 1, 2011

Proton falls to 14-month low with Target Price RM3.40 by Maybank

PETALING JAYA: Shares of Proton Holdings Bhd fell 23 sen to a 14-month low of RM3.86 yesterday, its lowest since Dec 22, 2009, after the national carmaker posted losses in its third quarter ended Dec 31, 2010.
Automotive analysts also revised downwards their earnings forecast for Proton's current financial year ending March 31, 2011 (FY11) following its poor financial performance.
“Proton's loss was a surprise, on the back of higher spending incurred for the turnaround of Lotus as well as the lower volume sold on the domestic side,” OSK Research said in its report yesterday.
“We trim our earnings projections by 32% and 33% respectively for FY11 and FY12,” it said.
Proton suffered a net loss of RM60.1mil for its third quarter ended Dec 31 compared with a net profit of RM79.68mil a year earlier due mainly to higher branding costs and restructuring expenses incurred by its sports car division, Lotus Group International Ltd.
Revenue fell 9% to RM1.83bil from RM2.01bil a year earlier. The costs incurred are part of Proton's five-year business plan to turn around Lotus.
Following a briefing with the national carmaker, OSK said Proton's earnings could be strained in the near to medium term.
“Management also reiterated that over the immediate to medium term, Proton will incur more expenses for the restructuring of Lotus, which will see branding and marketing costs, including its F1 foray, swallow up 15mil to 20mil per annum.
“Furthermore, over the course of the next few years, capital expenditure spending of an average of RM800mil to RM1bil will be incurred for Lotus' business transformation plan and R&D (research and development) for the local side, for which funding will be predominantly raised from debt,” it said.
OSK forecasts Proton's net profit at RM287.4mil and RM340.7mil for FY11 and FY12 respectively.
HwangDBS Vickers Research in its report said it is cutting Proton's FY11 to FY13 earnings by 45%-50% to account for higher branding and restructuring cost related to the Lotus Group.
“We expect Proton's fourth quarter for FY11 to return to the black, underpinned by better top line sales driven by Proton's top three selling models, namely the Saga, Persona and Inspira.”
The research house noted that Proton's January 2011 sales improved 37.3% month-on-month to 15,783 (from 11,498 in December 2010). “Excluding Lotus Group, Proton made a commendable improvement in operating profit for the nine months ended Dec 31, 2010, thanks to its more effective cost management and rationalization exercise,” said HwangDBS Vickers.
In a report by Bernama yesterday, former prime minister and current Proton adviser Tun Dr Mahathir Mohamad was quoted as saying that the national carmaker's financial performance was expected to improve in a year or two after the completion of the restructuring exercise of Lotus.
“Proton is not running at a loss. It's actually profitable but its profit has been trimmed because of the losses incurred by Lotus. Before we undertake to restructure, there will definitely be losses,” he was quoted as saying.
OSK said January was a record month for Proton sales since 2005( before Perodua's Myvi was launched).
“The near term bookings remain encouraging and we believe sales would continue to remain encouraging over the next few months,” said the research house.
OSK also said Proton had disclosed that its model pipeline in FY11 would predominantly comprise facelifts of the Saga, Satria and Exora. “Management also hinted that it is also looking to do another rebadging tie-up like it had done with the Inspira. Proton's Persona replacement will be deferred to next year, and so will its electric vehicle project.”
One analyst said Proton can save costs by focusing its efforts on facelifts or platform-sharing with other car companies.
“They can cut R&D costs by working on established platforms. Developing a facelift or collaborating with another auto manufacturer to come up with a new model is less costly than developing a new model from the ground up,” she said.
For the nine-month period ended Dec 31, Proton's net profit fell to RM90.5mil from RM216.29mil a year earlier while revenue declined to RM6.36bil from RM5.97bil during the same period.
HwangDBS Vickers said that there was room for further cost improvements for Proton as the national car company would be embarking on initiatives in the next four to five years to improve its performance.
“Lotus Group is expected to remain a drag on (Proton's) performance in the near term, although there are aggressive plans to turn it around,” said the research report.
An analyst from a local bank-backed brokerage said Proton's turnaround strategy is likely to impact the national carmaker's earnings in the next few quarters.
“While we believe Proton will return to the black in the next quarter, earnings could be weak because of its rebranding initiatives, which needs to be on-going.”
In a statement by Proton last week, the national carmaker said the domestic market outlook, coupled with rising fuel prices, would augur well for Proton's core models.
Source: Star Online, 1 March 2011

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