- DRB-Hicom unit Proton Holdings has signed an MoU with its Indonesian partner PT Adiperkasa Citra Lestari to develop and manufacture an Indonesian national car.

- We are neutral on this, pending more details of the plan. It will be positive if Proton can strategise to penetrate Indonesia’s mass market segment. Any plan to export the vehicles in the region would be a huge challenge. A feasibility study will be conducted before the parties seal the JV agreement.

- DRB-Hicom’s auto division is now relying squarely on its defence jobs for the government – specifically in the roll-out of the RM7.55bil AV8 contract.

- Proton’s sales are languishing amid stiff competition from Perodua and foreign makes. In CY2014, Proton’s share of the passenger vehicle market fell further to below 20% at 19.7% vs. 24.1% in the previous year and 25.6% in CY2012.

- Indonesia’s total car sales last year totalled 1.2mil units (-2% YoY) – ~1.8x that of Malaysia’s TIV – after reaching a record high of 1.23mil units in 2013. Indonesia’s TIV has grown by a CAGR of 12% over the last six years.

- It has been reported the Indonesian Automotive Industry Association expects 2015 sales to come close to that of 2014 due to sluggish domestic growth. Over the longer term, it expects Indonesia to overtake Thailand as the major auto hub in Asean. It projects car sales to grow to 2mil units by 2020 and to 3mil units by 2025.

- Similar to Malaysia’s energy efficient vehicle (EEV) policy, Indonesia is promoting low-cost green cars (LCGC), which is priced at below IDR 100mil (US$8,000). Since end-2013, the Indonesian government has offered tax incentives to cars with fuel efficiency targets under the LCGC policy.

- In a report last year, Reuters noted that car penetration in Indonesia is still at only 40 cars per thousand people, and the fast emerging middle class is the chief target for the LCGC, which now accounts for ~14% of sales. As it stands, Indonesia’s largest auto distributor is PT Astra International, which holds an over 50% of the TIV. It distributes cars for Toyota, Daihatsu and Honda.

- We maintain BUY on DRB-Hicom with an unchanged fair value of RM3.60/share – a 15% discount to our SOP value of RM4.25/share.

Source: AmeSecurities