Bursa Malaysia - Automotive Target Price and Top Pick 2011

Stock Name: PROTON
Company Name: PROTON HOLDINGS BHD
Research House: HWANGDBS

Automotive Sector
We are positive on the sector as TIV (total industry volume) growth is expected to hit a new record this year as well. We project TIV to register 622,210-unit sales (+5.4% year-on-year versus 2010's estimated 9.8% growth). 

This would be supported by four factors, namely more than 20 new model launches, strong consumer sentiment to underpin consumption of big tickets items, competitive financing rates despite expectation of 50 basis point'' interest rate hike in 1H11 and a resilient secondary car market.

We expect more foreign collaborations and investments to come this year following the revised NAP (National Automotive Policy) to allow 100% foreign ownership in the luxury car segment ( more than 1,800cc and priced more than RM150,000). For example, DRB-Volkwagen and Tan Chong-Nissan have facilities for local assembly in place.

Increased local assembly of CKD (completely-knocked-down) vehicles could potentially increase local content and hence local manufacturers' competitiveness against global players. We think prices of CKD vehicles could be reduced as a result of lower import duty on CKD vehicles and no duty for local component applications. 

However, the quantum of the decrease is likely to be smaller as manufacturers are keen to maintain the branding and image of the vehicle and utilise the additional margin to pay more incentives to dealers to boost sales. This should benefit names like APM Automotive (fully valued; target price RM4.60), DRB-Hicom (buy; TP RM3.55), Hirotako (not rated), and Delloyd Ventures (not rated).

Our top pick is UMW (buy; TP RM8.90) for laggard play and potential re-rating from unlocking of value for its oil and gas division. It is also a beneficiary of ringgit appreciation vs US dollar given its net US dollar cost exposure. 

We also like MBM Resources (buy; TP RM4.15) for its attractive valuation and potential expansion of its commercial segment. We downgraded Proton to hold (from buy) with RM4.70 TP given flattish earnings outlook arising from the heavy capex plan for Group Lotus and thinner margins on higher import cost. ' HwangDBS Vickers Research, Jan 10

No	Stock	Brd	Par Value	Total Shares	Close (RM)	Market Cap	CU PE	CU DY	EPS (RM)	ROE	ROR	ROTA
1	BKOON	M	RM 0.500	138376	RM 0.295	40.821	0.000	0.000	-0.003	0.000	0.000	0.000
2	CCB	M	RM 1.000	100745	RM 4.690	473.502	16.810	27.720	0.279	17.790	6.032	10.282
3	DRBHCOM	M	RM 1.000	1719601	RM 2.020	3611.162	7.350	1.980	0.244	10.313	7.480	1.817
4	MBMR	M	RM 1.000	242522	RM 3.320	805.173	12.120	1.810	0.275	7.440	5.648	5.758
5	ORIENT	M	RM 1.000	620393	RM 5.400	3381.142	12.390	1.850	0.524	6.907	7.872	5.222
6	PROTON	M	RM 1.000	549213	RM 4.700	2625.238	11.780	4.260	0.400	4.105	2.661	2.917
7	TCHONG	M	RM 0.500	672000	RM 5.260	3507.840	23.070	2.090	0.234	10.129	5.367	6.219
8	TSM	M	RM 1.000	125492	RM 1.810	239.690	9.230	2.760	0.454	16.777	9.523	8.562
9	UMW	M	RM 0.500	1148266	RM 7.580	8784.235	22.760	2.640	0.346	10.133	3.567	4.333

Source:The Edge Financial Daily, January 11, 2011.