Proton to develop six versions of engines from 1.0 litres to 1.5 litres
KUALA LUMPUR: Hong Leong Investment Bank (HLIB) Research is maintaining its Buy recommendation of DRB-Hicom with a higher target price of RM2.22 from RM2.
It said on Thursday this was based on a 20% discount to sum—of-parts following the upgrade in its Pos Malaysia (PosM) valuation from RM3.36 to RM4.80.
“DRB also benefits from PosM re-rating, following its consolidation of KLAS (Pos Aviation) and collaboration with Alibaba,” it said.
The research house said DRB’s share price had recently come under pressure amidst ongoing negative market news flow on the disappointing Proton sales volume as well as the withdrawal of tenders of prospective Foreign Strategic Partner (FSP).
“We believe the successful selection of FSP by mid-2017 will come into realisation, as the survival of Proton is the main priority by all stakeholders (government, DRB, suppliers, staff etc),” it said.
HLIB Research cautioned that without the FSP, Proton may worsen financially (cash draining) and eventually face winding up.
One of the conditions set by government in injecting RM1.5bil into Proton in 2016 was to seek and identify a “strategic and renowned partner who will assist in R&D for Proton to become a competitive player in auto industry at the international level”.
Both government and DRB have issued statements that all the FSP bidders (from several parties) are still in the running and DRB is in the midst of evaluation stage to select the best FSP, which will be finalised by May 2017.
“Excluding Proton’s losses, DRB group would be making profits for the past financial years. We expect re-rating for DRB post the exercise, given the de-consolidation of Proton from DRB’s financial, which will allow investors to appreciate DRB’s core earnings from other divisions.
“The risks are prolonged tightened lending rules; slowdown of the Malaysia economy affecting car sales; global automotive supply chain disruption; slow integration of Proton and PosM,” it said.
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