• National carmaker Proton announced that they will collaborate with a local partner to establish a manufacturing assembly plant in Pakistan, its first outside of Malaysia.

• Alhaj Automotive, the official distributor for Proton vehicles in Pakistan, will make an initial investment of US$30 mil (RM122mil) to build the first completely knocked down (CKD) plant for Proton vehicles.

• The new plant will be set up on a greenfield site in Karachi and expected to start operations by the June 2020, according to New Straits Times.

• Alhaj Automotive chairman Al-Haj Shah Jee Gul Afridi said the company would initially source completely built-up (CBU) units from Malaysia before switching to CKD products once the plant commences.

• Alhaj targets an annual production capacity of 25K with the Proton Saga as the first model. They did not provide a sales target. We estimate initial sales to be negligible at 2.5K-3.8K units based on a utilization rate of 10-15%.

• This would make up 5.8% of their last annual sales and 3.8% of its sales projection for the current year. Additionally, we believe the production rate is highly ambitious as it would account for nearly 10% of the current annual TIV in Pakistan of 260K units.

• We believe that this is not going to affect DRB as management guided that the capital expenditure on this will be fully taken on by the local partner. Furthermore, we emphasize that Proton’s turnaround plans are anchored to exports into the ASEAN region.

• We are neutral on this news as we believe the group should build a captive market for the X70 ahead of its localization and bigger plan to make Proton profitable with both domestic and exports sales.

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

Source: AmInvest Research - 25 Mar 2019