We are neutral on the revelation of DRB’s 96.9% owned CTRM as one of the potential partners for Malaysia’s new national semi autonomous car project. The government has an ambitious target to complete the prototype by early 2019 and roll out the model before 2020. While we view DRB’s participation in the new national car development to be in line with DRB’s strategic automotive plan, we have concerns on the financing and viability of the project that may drag DRB in the short term. Maintain BUY on DRB with unchanged TP: RM2.80, as we are positive on Geely’s strong support and commitment towards Proton’s turnaround.

NEWSBREAK

DRB’s CTRM interested in new national car. According to Entrepreneur Development Minister Mohd Redzuan Yusof, the government is currently short-listing two to three partners to participate in Malaysia’s new national car project. The potential partners include CTRM (96.9% owned by DRB) and Silterra (owned by Khazanah).

New national car project. The first model is targeted to roll-out before 2020, with the prototype of the model to ready by early 2019. The project would be fully funded by the private sector with the help of several government ministries. The car is touted to be semi-autonomous, targeting global market (not only Malaysia) and cater to the demand from young people. The project would use the latest “disruptive” technology and not follow conventional car manufacturing methods.

HLIB’s VIEW

Sketchy details with aggressive timeline. The overall details of the new national car project remain sketchy and the mentioned timeline is relatively aggressive, in our view. Given the short timeline, the prototype of the new semi-autonomous car may be based on existing developed ideal/vision prototype. We have doubts on Malaysia’s existing capability and capacity for the project. It was not mentioned if the project would rope-in foreign partners/supports. Relating to the production of the car, the project is likely to utilize existing manufacturing facilities in Malaysia at the initial stage, should the new car is on-track to roll-out before 2020. Furthermore, the new model is mentioned to be semi-autonomous, indicating that our existing infrastructure will need to be developed (at a fast pace) to accommodate to the features of the car.

Neutral view. While the details remain sketchy, we are relatively neutral on the participation of DRB’s subsidiary, CTRM in the project. We believe the project is in line with DRB’s strategic long term plan in the development of autonomous vehicles. However, we have concerns on the project’s financing and viability (at least in the short term), as DRB is still in the midst of its restructuring exercise for a turnaround after registering losses for the past three financial years (dragged by Proton), while Proton may need equity injection in the near term to finance its growth plan.

Forecast. Unchanged.

Maintain BUY, TP: RM2.80. We maintain BUY recommendation on DRB with unchanged TP: RM2.80. The new developments with Geely has further strengthened our view on its commitment in turning around Proton and establish Proton as its platform for regional ASEAN market expansion as well as penetration into China. Apart from Boyue (to be launched in Nov 2018), Proton is confirmed to introduce additional 2 new Geely models (SX11 and VF11) in 2019-2020.

Source: Hong Leong Investment Bank Research - 5 Oct 2018