PROTON (FV RM5.50 - NEUTRAL) 9MFY12 Results Review: Sinking Into The Red

Proton dipped back into the red amid weak domestic sales and persistent losses from Lotus. The immediate-term outlook will remain weak in view of the tighter lending measures imposed by the central bank. After trimming our revenue forecast on the back of the deteriorating vehicle sales outlook, we now project that Proton will continue to be loss making for two consecutive years. With DRB Hicom’s takeover price of RM5.50 in place, we maintain our NEUTRAL rating on the stock.

Low sales  exacerbate losses. With the number of vehicles sold hitting only 34,218 units (q-o-q:  -12.7%, y-o-y:  -7.4%, YTD:  -2.9%), its lowest level since 1QFY09, the national car manufacturer took a sharp hit on its topline (q-o-q:  -36.7%, y-o-y: -21.9%, YTD:  -6.8%). With Lotus still mired in losses  (albeit narrowed to RM36.7m this quarter from RM130m in the previous quarter), Proton saw its first set of losses for the year amounting to RM88.2m. For the year, 9M YTD losses stood at RM68.1m  vs our and consensus full-year net profit estimates of RM60.8-RM64.5m. Similarly, its revenue missed our estimate by 15%, which could  be attributed to the declining  export market volume.  

Cutting estimates. Following its 3Q loss, we expect Proton to sink into the red for two years in a row. We now forecast a net loss of RM86m after revising our FY12 revenue down  by 7%, noting that vehicle sales will  remain under pressure  owing to the sharp decline in hire purchase approval rates. Effective  from 1 Jan  2012, Bank Negara Malaysia implemented a debt service ratio based on net income instead of gross income that all banks must follow. This new  ruling by the central bank has  led to  a sharp deterioration in approval rates, of which the Proton dealership association estimates  to have dropped to 30% from 48%. For FY13, we have toned down our profit forecast by 18%.

Synergy with DRB? While we have yet to obtain any further details on DRB’s plan for Proton, we reckon that any synergies for Proton would largely depend on whether DRB can bring Volkswagen  into the picture and thereby, boosting the  utilization rate of its Tanjung Malim plant. Note that  Proton’s earlier  immediate-term plans, i.e. tie-ups with Mitsubishi and Hawtai, have been put on hold pending the takeover move by DRB.

Maintain NEUTRAL. With DRB Hicom’s takeover price of RM5.50 in place, we maintain our NEUTRAL rating on the stock.

Source: OSK188