Proton’s global small car key catalyst for DRB-Hicom

KUALA LUMPUR: Public Invest Research expects its Proton’s Global Small Car (GSC) model, which is expected to be launched either end-September or October, will be the key near-term catalyst for DRB-Hicom.

It said on Thursday the GSC is a hatchback B-segment model which will compete head-on with the popular Perodua Myvi.

“According to industry sources, there will be a few variants including 1.3-litre and 1.6-litre turbo engines,” it said.

Public Invest Research believes the GSC will be Proton’s key product to provide the sales volume necessary for Proton to break even during the financial years 2015 to 2016.

To recap, it said Proton sold about 11,000 units a month for the first half (H12014) compared with FY13’s 139,299 units.

“We estimate Proton will need to sell around 150,000 units per annum to break even,” it said.

DRB-Hicom aims to sell 160,000 cars in FY15. As for Lotus, its sales volume improved to 505 units in 1QFY15 (1QFY14: 386 units) which was its best quarter in three years.

Public Invest Research pointed Lotus has increased its production capacity from 20 units a week to 40 to 50 a week which will enable the company to reverse its operating loss. The break-even volume estimated to be 2,000 units per annum.

“We maintain our Outperform call on DRB-Hicom with an unchanged target price of RM3.20.

“While we acknowledge the challenges faced by Proton, we reiterate that DRB-Hicom group has many other valuable businesses (for example Bank Muamalat, Pos Malaysia and Deftech) as well as prime land banks such as its 250-acre Proton facility in Shah Alam,” it said.

Besides Proton, DRB’s automotive division includes its defence unit (Deftech), its composite manufacturing unit (CTRM), a 34%-stake in Honda Malaysia, subsidiaries which are Tier 1 vendors involved in automotive engineering & manufacturing, assembly (four motor vehicles and four motorcycles assembly plants) and distribution (for example Audi, Isuzu and Suzuki).

It said Deftech expects to report improved earnings with projected 12 units of AV8 armoured carrier to be delivered in 2014 (a total of 257 units over 2014-2018).

Public Invest Research said CTRM has an outstanding book order of RM5.6bil, and is currently focused on delivering products (clearing border backlogs) and controlling costs. 

Its services division, which includes 70% stake in Bank Muamalat, Kuala Lumpur Airport Services (KLAS), Konsortium Logistik (KLB), Alam Flora and Puspakom, will continue to be the key earnings driver for the group in FY15.

 

“Its PAC division has undeveloped land bank of more than 3,000 acres (including 50 acres in Klang Valley and 903 acres in Iskandar Malaysia) with estimated GDV of more than RM10bil over the next 10 years,” it said.