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

Proton Holdings Bhd
(Nov 3, RM4.86)
Maintain buy at RM4.88 with target price of RM6.18: We are quite surprised that Proton's hybrid line-up is to be launched next year, as media reports had indicated a launch sometime in FY12 with the commercialisation of the EMAS model, one of which will be based on a hybrid/electric engine.

Given that three of the prototype cars will be tested with 50 units to be used by the government, we believe product testing is in the final stages before mass production begins.

As the commercial launch is slated sometime next year, we think the hybrid engine could potentially be fitted into the Saga or Persona, for which the earlier price indication is about RM80,000, taking into account the higher cost of the batteries.

Plagued by negative perceptions arising from legacies of negative quality issues, we think Proton's upcoming hybrid variant will meet with some scepticism.

Furthermore, following the Budget 2011 announcement on incentives for hybrid cars ' the 100% exemption on import and excise duties on hybrid cars below 2,000cc (which saw the price of the Toyota Prius and Honda Civic trimmed down to RM139,900 and RM108,980) we see Proton having a tough time competing with the Japanese automakers.

Fortunately for Proton, the temporary tax and duty exemption on imported hybrid cars is only valid for 2011.

This gives a strong indication that Proton's hybrid will likely be commercially launched'' by 2012, once the tax exemption is lifted (which would see imported hybrid cars reverting to their original prices), thus making Proton's hybrid potentially 50% cheaper than other marques.

While we are sceptical on Proton's hybrid variant should it be launched next year, given the shorter development time frame, we think Proton could well be ready by 2012.

We are also encouraged by strong bookings of the Proton Inspira, which to date could exceed 2,000 units. Proton's valuation remains appealing as the stock is trading at a FY11 price-to-earnings ratio (PER) of 6.7 times against the sector PER of'' nine to 10 times.

We maintain 'buy' at an unchanged target price of RM6.18, based on its FY12 earnings per share of 8.5 times PER. ' OSK Research, Nov 3


This article appeared in The Edge Financial Daily, November 4, 2010.