News on Proton’s shortlisting of partner deemed positive
PETALING JAYA: DRB-Hicom Bhd is CIMB Research’s top sector pick premised on Proton Holdings Bhd’s potential turnaround following reports that the carmaker has shortlisted its potential strategic partner.
The research house said the development was positive for DRB-Hicom given that Proton was moving closer towards selecting its new strategic partner that could potentially turn around the carmaker.
It has maintained its “add” call on the counter and target price of RM1.69.
CIMB Research said this citing a recent Bloomberg report that Proton has shortlisted five candidates – Volkswagen AG, Suzuki Motor, Renault SA, Groupe PSA and Geely as its potential strategic partner.
To date, only French firm Groupe PSA, which was formerly known as PSA Peugeot Citroën, has reportedly confirmed its participation in the bid.
“We think this is positive as it indicates a good value proposition in Proton, and the possibility that a new partner could revive Proton’s earnings,” it said in a note yesterday.
According to CIMB Research, Proton’s management confirmed the news, and said that it planned to select the strategic partner before the first half of 2017, which is the deadline set by the Government following the RM1.5bil soft loan assistance earlier this year.
The carmaker has received proposals from the interested parties and is in the midst of reviewing them.
“It also said the new strategic partner needs to strategically, operationally and culturally fit with Proton,” the research house said.
CIMB Research added that it expects the newly-launched third-generation Proton Saga to drive sales volume for Proton.
This is Proton’s third launch this year after the Perdana and Persona models.
The new Saga retails at between RM37,000 and RM46,000 and the most premium model is about 10% cheaper than its rival Perodua Bezza, the research house noted.
The management has set a 5,000 monthly sales target for the Saga and expects to recover its RM150mil development cost for the model within the next three years.
“Apart from that, we learnt that the Persona model launched in August is gaining good traction among consumers, exceeding 10,000 bookings within a month of its launch,” it noted.
It said Proton was ramping up production for the Persona, given that it had delivered 2,500 units this week.
CIMB Research said potential re-rating catalysts for DRB-Hicom were the emergence of a strategic partner for Proton and better performance from its services division.
Key downside risks, it said, were in the event Proton did not find a foreign strategic partner and suffered higher losses.
DRBHCOM (1619) - DRB-Hicom is CIMB Research’s top pick