CIMB sees risks to Proton turnaround plan

KUALA LUMPUR: There may be potential risk to Proton's turnaround plan if the new government plans to review the Proton-Geely partnership, said CIMB Equities Research.

The research house also said it is wary about the carmaker's ability to obtain price reductions from its vendors as part of its strategy to cut its total cost by about 30%. 

However, CIMB said its channel checks reveal that quality improvements and new model initiatives remain on track, which augurs well for the Proton-Geely partnership while Proton's first SUV is still on track to launch in 4Q18. 

It said this as it maintained its FY18-20F earnings per share forecast on DRB-Hicom but downgraded the counter from add to hold with a lower target price of RM2.21. 

"We see narrowing losses by Proton, strengthening of the ringgit against the US dollar and higher net profit contribution from the services division as upside risks to our call while widening losses at Proton and weaker contribution from the services division are key downside risks."

The research house also said PH's plans to reduce excise duties on imported cars below 1,600cc for first-time car buyers bodes well for consumers and could boost total industry volume. 

It said DRB's 34% associate Honda Malaysia may benefit although it could come at the expense of Proton. 

"DRB’s 34% associate, Honda Malaysia, may benefit but it could come at the expense of Proton."

CIMB also said it saw minimal impact on total industry volume from the removal of GST given that it will be replaced by a sales and service tax. 

In the same report, CIMB said any delay in Digital Free Trade Zone initiatives pose risks to DRB-Hicom's 53% sibsidiary, Pos Malaysia, which invested RM60mil to upgrade and renovate the former low-cost carrier terminal.