KUCHING: Proton Holdings Bhd’s (Proton) robust results fuelled by resilient domestic vehicle sales were anticipated to progress into next year following the recent launch of Proton Inspira and Persona.
ANTICIPATED IMPROVEMENT: RHB Research believes that Proton will see improved earnings in the third quarter of financial year 2010 due to normalised car sales and the launch of its Inspira model last month. — Photo from cars91.com
On the financial front, the national carmaker reported a pre-tax profit for the six months ended September 30, 2010 (6MFY11) of RM186 million, an increased of RM21 million in same period of 2009. Its revenue rose to RM4.53 billion from RM3.95 billion previously.
However, its pre-tax profit for the second quarter fell to RM81.2 million from RM100.7 million a year before. “During the quarter, Proton made a total one-off provision of RM21 million for branding costs incurred by Lotus and stock obsolescence for Waja,” said OSK Research Sdn Bhd (OSK Research).
“Against the previous year, due to the higher demand for vehicles in 2010 in the domestic market as well as the export market, Proton chalked up a growth of 6.5 per cent year-on-year and 14.5 per cent in its top-line,” said the research firm.
Maybank Investment Bank Bhd (Maybank Investment) head of research Andrew Lee further commented as Proton seeks to unlock value through strategic partnerships and explore opportunities overseas, valuation were inexpensive “It also has a sizeable war chest of RM1.2 billion, which could be upstream for higher dividends,” he added.
“Despite reporting moderately weaker revenue quarter-on-quarter, domestic earnings before interest and tax (EBIT) grew to RM143 million on the back of stronger margins. We suspect Proton benefited from better product mix and lower costs,” said Lee.
He pointed out that the stronger domestic operations had helped to cover losses of its overseas operations and its 100 per cent owned Lotus which could be due to the provision for slow moving stocks.
Maybank Investment expected a weaker second half which was consistent with the seasonal trend. However, it projected a two-year net profit of eight per cent but a lower five per cent revenue as Proton reaps the benefits of economies of scale and ongoing cost cutting measures.
“Proton aims to raise the local contents from 26 per cent now to 60 per cent within a year, which would further enhance profits,” said Lee.
On the other hand, RHB Research Institute Sdn Bhd (RHB Research) analyst Loong Kok Wen believed Proton would see improved earnings in the third quarter of financial year 2010 due to normalised car sales and the launch of its Inspira model last month.
“We also understand that the branding costs were actually incurred for Lotus, which is within expectations given that the company was heavily promoting the subsidiary during its Paris motor show in September,” added Loong.
Among the risks that were taken into considerations were the lower car sales arising from slower economic recovery and the weakening of the ringgit against the US dollar as well as the erosion in market share from competitors.
RHB Research made no changes to its earnings forecast at this juncture, as it await the third quarter results to see if there was any improvement with the launch of the Inspire.
“However, we introduce our financial year 2012 earnings which incorporate a total industry volume growth of 3.3 per cent and net earnings per share growth of 3.8 per cent. This assumes that beyond financial year 2012, cars ales growth could stagnate at three per cent per annum,” Loong explained.
Based on all the given factors, RHB Research pegged Proton’s fair value at 5.60 per share, while OSK Research remained unchanged at RM6.18 per share and Maybank Investment at RM5.90 per share.