Investment Highlights

• We maintain HOLD and an FV of RM1.99/share on DRB-Hicom based on SOP valuation.

• Key points from our meeting with the group last week:

1) Proton X70 – providing both volume and margins. The recently launched X70 SUV was well received and is still reflecting strong demand through encouraging sales booking to date. Since the launch of X70, the group has sold more than 7.5K units on the back of over 20K bookings, which outperformed its expectations. Management said that the demand for the SUV is still going strong and arrangements are being made to cater to the bookings made.

We reiterate Proton will be focusing on securing margins rather than the volume-based strategy that it has found little success with.

DRB has shared in the past that they aspire to build the X70 locally, with an initial localization rate of 10% and progressively increasing it to 80% by 2023. Recall that Proton stated last year it hopes to launch one new vehicle from the Geely collaboration every year, and that it had secured the use of intellectual properties (IP) and the rights to manufacture and sell up to 4 Geely cars for 5 years.

We believe the stakes for the X70 are high given that it is being counted upon to lead a fundamental shift in Proton’s market positioning and brand perception.

2) New launches from Honda and Proton. Management also guided that there will be new launches from Honda but remained tight-lipped on details of the models. News reports have identified the Honda Civic and Accord to be potential launches for 2019, in addition to the recently launched HR-V. We are conservative on Honda’s outlook this year given the soft market sentiment and the absence of launches of key volume-based models; namely the City and CR-V.

In addition to the recently launched Saga, management highlighted that the Iriz and Persona will also be launched by this year as well, enhanced with Geely technologies. However, we remain neutral these launches as we are concerned about its competitive prospects against Perodua’s Myvi and Bezza respectively.

• We believe the group should build a captive market for the X70 ahead of its localization and the bigger plan to make Proton profitable with both domestic and exports sales of the model.

Source: AmInvest Research - 22 Mar 2019