Proton Holdings

Proton Holdings: Proton sprung us a surprise with far better than expected bottomline numbers recording a net profit of RM54.6m for 1QFY10. Results were far better than ours and consensus forecast which had expected a loss. Topline and net profit numbers were boosted by the higher selling price mix given the introduction of the MPV variant coupled by lower raw material prices. We adjust our numbers drastically from loss making to post a net profit of RM184.6-227.1m for FY10-11. Turning positive on its future prospects from the Exora export market and improved domestic market share we upgrade Proton to a BUY with a TP of RM4.24.

Surprise. Proton recorded a net profit of RM54.6m for 1QFY10, its highest core profit achieved since 4QFY06. Numbers posted a turnaround, beating both ours and street estimates which were forecasting a loss. Annualized revenue exceeded our forecast by 13.5%. Its revenue, which grew by 32% and 8.4% q-o-q and y-o-y respectively came at its highest level achieved since 3QFY06, all thanks to the introduction of the new MPV variant (Exora) which saw a significant boost on the higher sales mix despite the slight contraction in vehicle volume of 1.4% y-o-y (28.3% increase q-o-q).

Turning around. Margins improved drastically after posting 2 consecutive quarters of losses on the lower raw material prices booked for the quarter as steel prices slid further by 23.2% q-o-q (after factoring in the JPY/MYR conversion). No exceptional losses were recorded this quarter after the heavy kitchen sinking exercise from inventory write-downs and asset impairments in 4QFY09. Compared to 1QFY09, EBIT margins improved to 3.1% from 2.9%. Balance sheet remains sound with net cash position improving to RM879.1m against the RM555.6m recorded in 4QFY09.

Back to profitability. We have turned positive on Proton comforted by its improved domestic market share and brighter export prospects from the Exora model. Our forecasted numbers have also been increased with total volume sold for FY10-12 adjusted upwards by 12-15% thus leading to a 22% increase in revenue for FY10 and 9- 12% for FY11-12. For its bottomline, we expect Proton to post a core net profit of RM184.6 for FY10, still lower than the current quarter annualised numbers as we remain conservative on the higher cost pressures over the coming months ahead in anticipation of escalating raw material prices.

52 week H | L Price (RM) 3.20 1.50

Major Shareholders (%)
Khazanah 42.74
EPF 16.96
Petronas 7.85

By OSK188
Analyst: Ahmad Maghfur Usman