Stock Name: PROTON
Company Name: PROTON HOLDINGS BHD
Research House: CIMB

Automotive sector
Maintain overweight: Total industry volume (TIV) in August advanced 14% year-on-year (y-o-y) and 3% month-on-month to 55,208 units, the third highest monthly sales in five years after October 2005's 56,695 units and March 2010's 56,139 units. Sales in August were largely buoyed by the rush for delivery before the Hari Raya Aidilfitri festive season. We maintain our 'overweight' call on the auto sector as major demand drivers such as the economic outlook, consumer sentiment, the availability of credit, and new models are intact. On the cost front, a stronger ringgit against the greenback and the recent intervention by the Japanese government to control the rising yen spell good news for auto players. Potential re-rating catalysts include: (i) the strong sales performance; (ii) a firming ringgit; and (iii) more accommodating policies.

We are keeping our 10% growth projection of 590,955 units. Although annualised year-to-date vehicle sales are 4% ahead of our expectations, we expect y-o-y sales growth to moderate in the subsequent months as the base of comparison is relatively higher, given that vehicle sales recovered towards 2H2009. We expect the festive-shortened September to be soft on a quarter-on-quarter basis. We are also keeping our 5% TIV growth assumption for 2011.
The sales of most major MPVs such as Proton Exora, Perodua Alza, Nissan Grand Livina, Honda Freed, Toyota Innova and even the flailing Toyota Avanza strengthened in August. We think more families may have opted for larger vehicles in the run-up to the festive season when they expected to travel more.

We retain our earnings forecasts, recommendations and target prices for Tan Chong ('outperform'; target price RM9.30), UMW ('outperform'; TP RM8.70), and Proton ('trading buy'; TP RM5.95).'' Tan Chong remains our top pick in the auto sector. Backed by its expansion plans and stronger industry fundamentals, Tan Chong boasts impressive earnings growth potential over the next three years, which should support our EPS CAGR projection of 47%. Catalysts would be: (ii) stronger earnings growth trajectory; (ii) new model pipeline; and (iii) strategic positioning which will help it gain market share and tap into regional demand. ' CIMB Research, Sept 27


This article appeared in The Edge Financial Daily, September 28, 2010.