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Friday, June 01, 2007

Analysts: Proton has to pull up its socks

PETALING JAYA: Analysts are generally optimistic about Proton Holdings Bhd’s performance for the financial year ended March 31, but there were also rumblings among them that Proton seriously needs to pull up its socks.

Aseambankers executive vice-president and head of equity research Vincent Khoo told StarBiz: “The results were better than expected, and there were some exceptional write-backs.

“However, the good news is that the operational losses came down, partly due to the promotions in March to sell the Saga at a lower price.”

Khoo was also satisfied with Proton’s cash position of RM616.5mil, which he said indicated better inventory management.

Going forward, he expects operational losses to continue although the losses in the previous financial year were due to “exceptional items”. He added that the national car maker was unlikely to “bleed into the current financial year”.

M&A Securities Sdn Bhd research head Wee Kim Hong concurred, saying that although there would not be any profit this year, Proton still needed to achieve that crucial level of sales.

“Incurring a loss has not been unexpected but if the sales numbers don’t grow, profitability levels will be low, looking at past years.”

Overall, Wee said Proton had no other option but to come up with new models, and even then, would need to beat off stiff competition from foreign brands and local rivals, all of which offer competitive prices.

“At the end of the day, sales growth is all about product quality, because the quality of Proton cars is not up to global standards. This is what it needs to work on. If South Korean car manufacturers could do it in 20 years, we can look towards that as an example,” he added.

An analyst at a bank-backed brokerage offered a dimmer view. “Improvement efforts are ongoing but prospects are not promising. Car sales remain weak, especially for Proton vehicles, because it is hard for banks to determine the collateral value of the cars as they keep cutting car prices.”

She added that the market would be a tough playing field, even more so overseas where the competitive environment is more challenging.

On Proton’s financial performance, she said: “They cleaned up a lot in FY07, and I expect them to try to sell some land or non-core assets, which may result in better numbers in FY08. Core operations, however, will remain weak.”

At a briefing yesterday, analysts were informed of the upcoming launch of two new models this year. Although Proton has a 29% share of the domestic car market, its prospects are not entirely bright.

A source said Proton intends to venture into the multi-purpose vehicle (MPV) market as well, and may explore the possibility of launching an MPV model in 2009.

“Compared with the passenger and commercial vehicle segments, the MPV market is growing and may bring new opportunities,” the source said.

“There’s a lot of competition, with Perodua’s Viva already in the market and Toyota launching new models as well,” an analyst with a local research house told StarBiz. “I think Proton still needs to focus on finding the right partner,” he added.

The source added that Proton had said the Government was still conducting talks with General Motors, but said the prognosis for a possible tie-up at present “does not seem too optimistic, compared with what was said at last year’s briefing.”

Analysts, however, applauded the company’s move to right size its dealer network and slash costs. Proton is said to have trimmed its network from 400 to 320 outlets.

Another decision to tap into the Indonesian, Chinese, Indian and Iranian markets also met with approval. “They have some presence in those countries already, but intend to grow it, but will also face stiff competition,” an analyst said.



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What is the main factor for you to buy a Proton Car?
Low price and no other choice due to budget
Good resale value
Low maintenance cost
Ride & Handling is good
Reliable parts, chasis and engine
Good Styling exterior & Interior
Patriotism (I support Made in Malaysia Products)
Follow others (Follow Majorities should be the best choice)