- DRB-Hicom Bhd unit DRB-Hicom Commercial Vehicle Sdn Bhd (DHCV) is targeting to sell at least 300 units of Tata trucks and prime movers in FY16. DHCV is the exclusive distributor of Tata commercial vehicles in Malaysia.

- According to news reports, it intends to assemble Tata vehicles at DRB-Hicom’s plant in Pahang after FY 16. We are neutral on this development.

- Also in the news recently is the possibility of Proton looking at a tie-up with AB Volvo, which is now owned by China’s Zhejiang Geely Holdings. Any tie-up could revolve around Volvo making use of Proton’s under-utilised Tanjung Malim plant, which currently has a capacity of 150,000 vehicles.

- We believe it is not far-fetched for Proton to enter into a strategic tie-up akin to the one inked with Japan’s Suzuki Motors.

- DRB-Hicom has been beset by losses at Proton, which had dragged the group into the red, in spite of profitable defence contracts and concession businesses. For the 8 months through Aug, Proton sales fell 15% to 70,113 units (passenger vehicle market share: 18.1%) from 82,696 units (20.9%) in the previous corresponding period.

- Sales were boosted during the Hari Raya period in July, which saw volume improving to 10,867 units. However, sales have fallen back to the 8,000-10,000 range with the figure at 9,040 units in August. Pre-GST, sales slumped to just 4,975 units in April.

- Proton is still largely dependent on sales of the Saga range (B segment), and is in need to roll out models, particularly in the A segment. Proton has teamed up with Suzuki to develop compact cars by next year. Proton is also expected to roll out by next year its new Perdana range via its collaboration with Honda.

- Maintain BUY, with an unchanged fair value of RM1.96/share, based on a 45% discount to our SOP value – which implies a P/BV ratio of 0.5x – at its 10-year historical mean and below the five-year mean of 0.6x.

- DRB-Hicom’s RM7.55bil AV8 armoured-vehicle defence project’s earnings contributions are expected to peak in FY17F-FY18F. Proton’s UK-based Lotus group is potentially turning around, with sales rising 55% to 2,015 units in FY15 (FY14: 1,296 units).

Source: AmeSecurities Research - 23 Sep 2015