PP 7767/09/2010(025354)

RHB Research
Corporate Highlights Institute Sdn Bhd

Malaysia
A member of the
RHB Group
Company No: 233327 -M

R e su l ts Note
24 August 2010
MARKET DATELINE

Proton Holdings Share Price

Fair Value
:
:
RM4.66
RM5.50
A Steady Start Recom : Outperform
(Maintained)

Table 1 : Investment Statistics (PROTON; Code: 5304) Bloomberg: PROH MK

Net Net
FYE Turnover profit EPS Growth PER C.EPS* P/CF P/NTA ROE# Gearing GDY
Mar (RMm) (RMm)# (sen) (%) (x) (sen) (x) (x) (%) (%) (%)
2009 6,486.6 40.0 7.3 (26.8) 64.6 (3.4) 0.6 0.8 Net Cash 1.1
2010 8,232.9 248.1 45.2 521.0 10.4 48.1 (14.5) 0.5 4.7 Net Cash 0.0
2011f 8,518.2 370.2 67.4 49.2 7.0 58.1 (50.1) 0.5 6.5 Net Cash 0.0
2012f 8,958.1 413.0 75.2 11.6 6.3 58.0 (175.8) 0.5 6.8 Net Cash 0.0
Main Market Listing / Non-Trustee Stock / Syariah-Approved Stock By The SC # Normalised * Consensus Based On IBES

RHBRI Vs. Consensus

♦ Within our and consensus estimates. 1QFY11 net profit of RM84.7m Above
In Line
achieved 23% and 27% of our and consensus full year estimates on the
Below
back of stronger unit sales and better product mix.

♦ Yoy and qoq both up. On a yoy basis, revenue and net profit rose Issued Capital (m shares) 549.2
23.6% and 55.2% respectively as better economic condition and Market Cap (RMm) 2,559.3
improving consumer sentiment lifted purchases of Proton cars (+8.3%). Daily Trading Vol (m shs) 0.9
52wk Price Range (RM) 5.90-6.69
Better product mix also resulted in EBIT and PBT margins increasing 1ppt
Major Shareholders: (%)
and 1.1ppts. On a qoq basis, EBIT was up, again due to the better unit
Khazanah Nasional 42.7
sales and product mix, but the significant jump in PBT and net profit was EPF 13.6
mainly due to the low base of 4QFY10 numbers which were eroded by the Petronas 7.9
many provisions made then.
FYE Mar FY10 FY11 FY12
♦ Outlook. Like many of its automotive counterparties, Proton reiterated EPS chg (%) - - -
the Malaysian Automotive Associations’ (MAA) projection of moderation in Var to Cons (%) (6.1) 16.0 29.7
car sales growth for 2H10. To mitigate that, the company plans to
PE Band Chart
intensify its marketing initiatives and focus on improving sales volume
through planned launches of its core models in the key markets.
PER = 8x
PER = 6x
♦ No go for external contract manufacturing. With the news of PER = 4x
Volkswagon tying up with DRB-Hicom, we can rule out Proton securing
external contract manufacturing to optimise its plant capacity utilisation.
As such, the company’s next best option would be the consolidation of its
plants to Tanjung Malim. Management reverts that there is indeed a
detailed study being conducted at the moment, and the exercise should
be completed by early FY11.
Relative Performance To FBM KLCI
♦ Risks. 1) Lower car sales arising from slower economic growth;
2) weakening of RM against US$ and Yen; and 3) Erosion in market share
from competitors Proton Holdings

♦ Forecasts and assumptions. No change to our earnings forecasts at

this juncture, given results are in line with assumptions.

♦ Investment case. We maintain Proton’s fair value at RM5.50 based on FBM KLCI
its 1QFY11 assets position (see Table 4); which is derived on the
unchanged assumption of stripped down book value. We maintain our
Outperform rating on the stock. Joshua CY Ng
(603) 9280 2239
joshuang@rhb.com.my

Please read important disclosures at the end of this report. Page 1 of 4

 24 August 2010

Table 2: Earnings Review

FYE Mar 1Q10 4Q10 1Q11 qoq yoy Comments
(RMm) (%) (%)
Revenue up yoy, due to increase in car unit sales (+8.3%),
Revenue 1,852.0 2,263.3 2,289.9 1.2 23.6 while there was some moderation in qoq unit sales (-0.3%)
(see Table 3).
Higher yoy due to: 1) higher sales volumes which led to
EBIT 64.6 78.0 102.6 31.5 58.9
economies of scale; and 2) better product mix.
Interest exp (3.7) (3.5) (2.0) (42.7) (46.6)

Associate 3.6 7.9 4.1 (48.4) 14.6

No extraordinary items for 1QFY10. For 4Q10, EI came from

R&D grant, writedown of R&D expenditure, writedown of
EI 0.0 (69.4) 0.0 (100.0) -
inventory and doubtful debts and reversal of prior years’
provision for impairment of PPE.
4Q10 PBT revised down to RM13m from RM37m due to
additional provisions amounting to RM20.2m (announced on
Pretax profit 64.4 13.0* 104.6 703.1 62.5 30 July 2010). Based on 1QFY11 notes, excluding the
provisions, 4QFY10 and 1QFY11 PBT would be RM75m and
RM105m respectively, representing a 40% qoq growth.
Taxation (9.8) (10.4) (20.0) 91.4 103.2

Net profit 54.6 2.6 84.7 3,158.1 55.2

Norm Net profit 54.6 (66.8) 84.7 (226.8) 55.2 Filtered down from pretax profit.
EBIT (%) 3.5 3.4 4.5 1.8 1.0
Pretax (%) 3.5 0.6 4.6 4.0 1.1
Normalised net
2.9 -3.0 3.7 5.9 0.8
profit (%)

* adjusted for after 4QFY10 results

Table 3: Proton unit vehicle sales

FYE Mar 1Q10 4Q10 1Q11 qoq yoy

(units) (%) (%)

Proton 36,932 40,132 39,994 (0.3) 8.3

- Passenger 36,883 40,089 39,962 (0.3) 8.3

- Commercial 49 43 32 (25.6) (34.7)

Total 36,932 40,132 39,994 (0.3) 8.3

Source: MAA, RHBRI

Table 4: Stripped Down Book Value
RMm Mar-10
Shareholders' Funds
5,412

Shares o/s (m) 549 Shares o/s remained unchanged.

Stripped down items: RMm Remarks

Goodwill 29.0

Intangible assets 679.0 Increased 23.5% qoq.

Inventory 393.7 Assumed that 70% is written off.
Receivables 233.3 Assumed 70% of receivables is written off.
Plant & Equipment and Furniture & Fittings 1,046.4 Assumed 60% is written off.
Sub-total 2,381.4

Stripped down BV 3,030.1

Fair Value (RM/share) 5.52

Source: RHBRI

Page 2 of 4
 Table 5: Earnings Forecasts Table 6: Forecast Assumptions
FYE Mar (RMm) FY09 FY10 FY11F FY12F FYE Mar FY10 FY11F FY12F

Turnover 6,486.6 8,232.9 8,518.2 8,958.1 Domestic sales (k units) 151.5 165.3 180.5
Turnover growth (%) 15.4 26.9 3.5 5.2 Export sales (k units) 22 25 28

Cost of Sales 6,738.7 8,280.9 7,711.2 8,100.9

EBITDA (252.1) (48.0) 807.0 857.2

EBITDA margin (%) (3.9) (0.6) 9.5 9.6

Depreciation 401.7 398.0 402.0 406.0

Net Interest 15.6 23.8 16.0 18.8
Associates 28.6 18.8 19.7 21.7
EI (360.3) 9.0 0.0 0.0

Pretax Profit (337.6) 285.0 440.7 491.7

Pretax margin (%) (5.2) 3.5 5.2 5.5
Tax 17.2 (45.9) (70.5) (78.7)
PAT (320.4) 239.1 370.2 413.0
Minorities 0.0 0.0 0.0 0.0
Net Profit (320.4) 239.1 370.2 413.0
Normalised NP 40.0 248.1 370.2 413.0
Source: Company data, RHBRI estimates

IMPORTANT DISCLOSURES

This report has been prepared by RHB Research Institute Sdn Bhd (RHBRI) and is for private circulation only to clients of RHBRI and RHB Investment Bank Berhad
(previously known as RHB Sakura Merchant Bankers Berhad). It is for distribution only under such circumstances as may be permitted by applicable law. The
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The recommendation framework for stocks and sectors are as follows : -

Stock Ratings

Outperform = The stock return is expected to exceed the FBM KLCI benchmark by greater than five percentage points over the next 6-12 months.

Trading Buy = Short-term positive development on the stock that could lead to a re-rating in the share price and translate into an absolute return of 15% or more
over a period of three months, but fundamentals are not strong enough to warrant an Outperform call. It is generally for investors who are willing to take on
higher risks.

Market Perform = The stock return is expected to be in line with the FBM KLCI benchmark (+/- five percentage points) over the next 6-12 months.

Underperform = The stock return is expected to underperform the FBM KLCI benchmark by more than five percentage points over the next 6-12 months.

Industry/Sector Ratings

Overweight = Industry expected to outperform the FBM KLCI benchmark, weighted by market capitalisation, over the next 6-12 months.

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Neutral = Industry expected to perform in line with the FBM KLCI benchmark, weighted by market capitalisation, over the next 6-12 months.

Underweight = Industry expected to underperform the FBM KLCI benchmark, weighted by market capitalisation, over the next 6-12 months.

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