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Friday, November 23, 2007

22-11-2007: Proton skids to 7-year low

KUALA LUMPUR: Proton Holdings Bhd’s share price plunged 18.6% to a seven-year low of RM4.02 yesterday as investors dumped the stock after the government backtracked from an earlier decision to seek a foreign partner for the beleaguered national carmaker.

Analysts said investors were not convinced Proton could do well on its own and were stunned by the government’s flip-flop on the matter. In response, Prime Minister Datuk Seri Abdullah Ahmad Badawi insisted that Proton was “doing well” and said that there was no issue of the government bailing out the carmaker.

Sliding from the opening bell, the stock plunged to its intra-day low of RM3.98 before recovering slightly to close 92 sen lower at RM4.02. Sentiment in the stock was made worse by the overall weak market, which saw the Kuala Lumpur Composite Index falling 11.85 points to 1,359.85.

“No, no, there is no question of bailing out. Proton is doing well today,” he told reporters on the sidelines of the East Asia Summit in Singapore yesterday. “Proton has started turning around now.”

“(The) Proton management has already demonstrated the ability to turn around. The situation that Proton is in today is not the same like two, three years ago,” he said, adding that it would bring new models to the market.

“We have asked Proton to have a turnaround plan, in the same way Malaysia Airlines achieved a turnaround,” he said. According to news wire reports, Abdullah stressed that Proton had taken the initiative to export its cars to Indonesia, India, China and the Middle East.

On Tuesday, Second Finance Minister Tan Sri Nor Mohamed Yakcop shocked analysts and investors alike when he announced that the government had decided to withdraw from talks with Volkswagen AG and General Motors to sell a strategic stake in the national car project.

He had said the decision was made by the Cabinet Committee on National Automotive Policy (headed by the deputy prime minister) following a final reappraisal of whether the time was right to enter a strategic alliance with a major car manufacturer.

In what appeared to be frenzied selling following the shocking decision, nearly 16 million Proton shares changed hands as, among others, CIMB Research maintained its underperform on the counter and TA Securities advised investors to sell the stock.

Automotive analysts did not mince their words in expressing dismay at the premature end to negotiations and said issues including the bumiputera vendor programme and Proton’s status as a national project could have influenced the government’s decision.

In no uncertain terms, CIMB Research said the latest development would hurt Proton’s aspirations to be become a reputable regional auto player.

Expressing disappointment and saying it was “taken aback” by the decision, it said questions remained concerning Proton’s long-term viability given further liberalisation of the local auto industry, the influx of new competitive models and competition from foreign carmakers.

“Proton lacks global competitiveness as it has a poor brand image, no real global presence to speak of and lacks the necessary technology to compete against other carmakers.

“With the latest turn of events, we expect Proton to remain largely a localised auto manufacturer despite recent ventures into China and Iran. These projects are very preliminary and entail high execution risks, especially in the cut-throat Chinese market,” it said.

The research house said contrary to the Proton management’s and the government’s belief, VW would not be interested in restarting talks at a later stage given that it had been spurned twice in three years.

News reports have it that VW, Europe’s biggest carmaker, is already looking for a new Asian partner and will be focusing on Indonesia and Thailand.

On Proton’s earnings outlook, CIMB Research forecast the national carmaker to narrow its losses to RM333.6 million next year and RM166.7 million in 2009 from a net loss of RM591.3 million for the financial year ended March 31, 2007.

On its valuation for Proton, it said: “We are applying a wider discount to net tangible assets (NTA) to factor in higher risks and Proton’s poorer prospects as it goes alone.”

“We now use a valuation parameter of 0.4 times CY08 NTA instead of 0.5 times CY07 NTA. Hence, despite rolling over our valuation horizon, we have cut our target price from RM4.52 to RM3.50,” it said.

Meanwhile, TA Securities Research forecast Proton’s losses in 2008 and 2009 to narrow to RM158.3 million and RM119.8 million, and expects the carmaker to register a net profit RM9.4 million in 2010.

The research house also pointed out that as in all the previous negotiations with potential foreign partners, no details were publicised by the government as to the reasons for talks to cease, leaving investors to play a guessing game.

“We suspect the substantial shareholder (Khazanah) has too many uneconomical conditions from the perspective of VW that led to such a disappointing outcome. The shareholder is under pressure to entertain demands from many quarters, most of which are under the banner of serving national interest.”

TA Research said the government could have feared that VW would only use Proton solely as another production line to serve its own presence in the region. “As Proton is a national project, the government would definitely like to see the brand name have an indefinite life. It is a matter of pride for the government,” it said.

It said while the government was betting on Proton’s better-than-expected performance in the last three months in terms of domestic sales, as well as its overseas plans for China, Indonesia, Iran and impending exports to Thailand, the sustainability of the growth was in question.

“We do not dare bet our dollars on it as we believe the industry is a numbers game. To establish oneself on a global scale, one would need strong sales numbers and economies of scale to cushion the fierce price war. And Proton does not even have this at home, let alone overseas.

“It still needs the network and a very strong brand name to catapult itself in overseas markets. It does not help to address quality perception issues at home and hope that overseas market sees the same,” said TA Research.

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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)