CIMB anticipates risks on Proton turnaround plan

PETALING JAYA: There may be potential risk to Proton Holdings Bhd’s turnaround plan if the new government decides to review the Proton-Geely partnership, according to CIMB Equities Research.

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

However, CIMB said its channel checks revealed 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 maintained its FY18-20 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 Pakatan Harapan’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 would 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% subsidiary, Pos Malaysia, which had invested RM60mil to upgrade and renovate the former low-cost carrier terminal.

Shares of DRB-Hicom closed almost 7% or 15 sen down to RM2 with 15.68 million shares were done.