DRB Hicom; Buy; RM2.76
Price Target: RM3.45; DRB MK

It was reported in the media today that VW AG has identified its VW Polo as the model to be possibly remodelled as the national car for Proton. VW has apparently formed a special team with key personnel meeting in Hong Kong last month and agreeing on this. The track record of VW speaks for itself where it turned around loss-making Skoda In the early 1990s.

The VW Polo uses a 1.2 TSI engine with a 7-speed DSG gearbox and priced at c. RM114k for a CBU unit. It was 2010 World Car of the Year based on merit, value, safety, environmental impact, significance, and emotional appeal. The news report indicated that a CKD unit could cost below RM70k making it an attractive value proposition for a German engineered vehicle. Sales for the existing VW Polo locally has been robust hitting 1681 units for 2011 up 6.5-fold from 257 units in 2010. The locally assembled VW Passat done in Pekan is expected to be rolled out this month.

This piece of news reaffirms the fact that there is abundance of value to be extracted from Proton especially with DRB-HICOM on board now. We maintain our Buy rating and TP of RM3.45 which is based on a 20% discount to SOP.

Source: HwangDBS Research 5 March 2012