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Free Website Counters SPY the Man: 19-11-2007: Proton to attract attention on imminent VW deal

Tuesday, November 20, 2007

19-11-2007: Proton to attract attention on imminent VW deal

KUALA LUMPUR: Proton Holdings Bhd is expected to continue attract ing investors’ attention in view of an impending sealing of an agreement with Germany’s carmaker Volkswagen AG (VW).

The stock rose as much as 18 sen last Friday, but eased at the close with an eight sen gain to RM5, with a total of 2.65 million shares traded.

The Edge Financial Daily reported last Friday that the government was close to inking a memorandum of understanding with VW entailing collaboration in the areas of manufacturing, marketing and distribution.

Analysts said a tie-up with a foreign carmaker would be an added advantage for the national carmaker to be more innovative in terms of its models’ designs and in marketing.

OSK Investment Bank analyst Jeremy Goh said Proton’s prospects seemed quite good in the short term, adding that the key point for the deal to take place was that the government must give up mangement control to VW.

“What Proton needs to do is to create whole new models by itself; in order to do that, they need to create a new platform. If Proton can’t get the deal, they can’t get the new platform.

“Proton currently is in a tight cash position, and cannot afford to invest in a new platform,” he said.

He said that since the launch of Persona, things were starting to look better for Proton, which is experiencing an increasing market share. Goh expected Proton to narrow its losses in FY08 due to the launches of new models, leading to a breakeven by FY09.

On the other hand, Affin Investment Bank analyst Jason Yap said that he liked the stock even without VW.

“Proton has turned around since May 2007 with the help of the new models they have launched — Persona, sport edition of Savvy and Satria Neo — as well as the soon-to-be launched (Jan 2008) BLM model, a replacement for the existing Iswara,” Yap said.

He added that the turnaround showed that the management was heading in the right direction.

Yap said Proton’s sales volume and market share had been on an upward trend since May 2007, and believed that it would soon outpace the total industry volume (TIV) recovery in the coming months, especially after the launch of its new BLM model.

He said Proton’s monthly market share had also improved from a low of 20% in May 2007 to 30% now, mainly at the expense of Perodua, whose monthly market share had been declining since June 2007. Perodua remains the market leader with a share of 34%, followed by Proton (23%), in the nine months to September.

Yap said a tie-up with VW was definitely an added advantage to Proton in terms of technology and market access. It could also resolve the problem of underutilisation of its Tanjung Malim plant, currently at more than 50%.

He said the fixed overhead cost at the Tanjong Malim plant was very high, and VW could pay for a portion of the overhead costs if the partnership were to materialise.

Affin has maintained its Proton’s target price at RM6.40 based on a price over net tangible asset of 0.7 times.

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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)