HLG: Proton Holdings - Above-consensus Q109; Raise to BUY (28 August 2008)

Proton Holdings Bhd BUY



Price target RM4.10



Share price at 27 Aug RM2.98



Investment summary


Q109 results were in-line with forecast, but >100% above consensus. Following its –19% YTD share price decline, we raise Proton from a HOLD to a BUY: (1) Domestic sales volumes/ ASPs have risen sharply thanks to the launch of new models, and this has trickled through to higher margins/ earnings. (2) Even if domestic sales slows due to the economic slowdown, we think Proton will remain cashflow-positive, in view of generous government industrial support. (3) Current RM2.98 share price is supported by RM4.23 in cash and inventory.



We are negative on Malaysia’s auto sector, as we believe that higher inflation could hit the consumption of big-ticket consumer durables.



Zero expectation price-tag

Share price has fallen –19% YTD, and Proton trades at liquidation levels. We think M&A-related newsflow could restart in H109, driven by the possibility of near-term political changeover, and this could cause a re-rating in the share price.