Proton’s Indonesian collaboration positive for DRB-Hicom

by **Cals** Tue 10 Feb 2015, 19:59

Proton’s Indonesian collaboration positive for DRB-Hicom

By PublicInvest Research / PublicInvest Research | February 10, 2015 : 10:46 AM MYT

[size=14]DRB-Hicom Bhd ([You must be registered and logged in to see this image.] Financial Dashboard)
(Feb 9, RM1.90)
Retain outperform call with an unchanged target price of RM3. We maintain our “outperform” call on DRB-Hicom as we believe its current share price is not reflective of deep underlying assets and businesses within the DRB group.

While we acknowledge the challenges faced by Proton Holdings Bhd ([You must be registered and logged in to see this image.] Financial Dashboard), even in worst-case scenario where Proton’s auto business is written-off, DRB-Hicom’s other assets and properties are still worth more than RM2.80 per share (excluding a net debt of RM5 billion).

According to various news sources, DRB-Hicom’s 100% subsidiary, Proton Holdings Bhd, has signed a memorandum of understanding (MoU) with PT Adiperkasa Citra Lestari to develop and manufacture an Indonesian national car.

A feasibility study will be conducted and is expected to be completed within six months. Although the MoU is still subject to feasibility studies, we view this collaboration between Proton and Indonesia as positive for DRB-Hicom as it gives Proton a platform and opportunity to help expansion into Asean and tapping larger automotive markets.

Indonesia’s automotive sector has experienced a positive growth with total vehicle sales increased by a compound annual growth rate (CAGR) of 11% over the past 10 years.

Growth in Indonesia’s automotive market is expected to be driven by rising domestic consumption and higher levels of disposable income.

According to Nielsen Global Survey of Automotive Demand, Indonesia has a relatively low vehicle ownership rate, with only 46% ownership levels, while Malaysia has an ownership level of 93%.

Strong gross domestic product growth signifies greater opportunity for more people to own a new car or used car with a 12.5% of 10 years CAGR.

According to latest report from the Association of Indonesia Automotive Industries, total sales in Indonesia dropped by 1.8% in FY14 due to increases in fuel prices and weakness in the Indonesian rupiah.

Nevertheless, the market share for affordable energy-saving cars has significantly increased by 236.3% compared with a year before.

We believe Proton that just launched its new compact car last year will benefit from this potential collaboration on the small car segment which may do well in the Indonesian auto market. — PublicInvest Research.

This article first appeared in The Edge Financial Daily, on February 10, 2015.
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