Post Proton X70 preview, we are positive with the new SUV model for its various innovative features and built quality. The model has received more than 8k pre-orders since Sep and expected to increase further with upcoming availability of online booking. Proton has no problem to fulfil the large pre orders and expect sales volume to be 3-4k units/month. Our forecast is unchanged and we maintain our BUY rating with SOP based TP of RM2.80.

Proton X70. We were given the opportunity to attend the preview of the highly anticipated Proton X70 SUV model. Without a doubt, we were amazed by the various features and built quality of the new model. The advance features include pre-installed e-SIM (for connectivity purpose), voice commands (similar to android and iOS) and personalised touchscreen head unit. Since booking (booking fee RM1k) was opened on 8 Sep, the model has received more than 8k pre-orders. Proton has announced online booking beginning 17 Oct. The model is due for launch in Nov with first delivery in Dec. Management indicated sufficient production and inventory to fulfil the high pre orders. The targeted monthly sales volume of X70 is within 3-4k units.

Safety features. Geely Boyue (original model of Proton X70) has achieved 5-star rating in the China New Car Assessment Programme (C-NCAP) with a score of 58.2 out of 61 points, the highest ever achieved for any SUV model. Passive safety features include 6 airbags and seatbelts, while active safety features include: 1) ABS with EBD and brake assist; 2) traction control; 3) stability control (Bosch Electronic Stability Control 9.1); 4) hill start assist; and 5) hill descent control (pegs the downhill speed at 4 km/h). The high-end model is also equipped with Advanced Driver Assist System (ADAS), which includes autonomous emergency braking (AEB), adaptive cruise control (ACC, from 30 to 150 km/h), lane departure warning (LDW, no steering), blind spot information system (BLIS) and intelligent high beam control (IHBC automatically lowers beam when oncoming car is detected).

SUV market. Proton indicated Malaysia SUV market is still at infancy stage with only 11.5% of new car sales as compared to other countries at high of 40%. Proton expects SUV segment to grow to 20% of new car sales by 2020 and 30% by 2025. Hence, X70 is a strategic model for Proton to leverage on the growing SUV segment in Malaysia and eventually ASEAN market. Proton is expected to introduce another smaller B-segment SUV model (Geely Bin Yue) within the next 2 years.

Production. Proton is investing RM1.2bn for expansion at Tg Malim plant in order to cater for the production of X70 and upcoming Proton models. The expansion is expected to complete by Mar 2019 with additional capacity of 150k units per annum. Proton will also invest into another engine manufacturing plant and upgrade its existing facilities, increasing total investment amount to RM3bn over the 3-5 years. The investment cost will be financed by cash injection by DRB and Geely as well as Proton’s internal cash flow and borrowings (partially supported by China banks). Initial X70 model will be CBU fully imported from China and subsequently replace with CKD by 2H19 with 30% local content and subsequently 40% in 2020 for export purpose. At the meantime, vendor development program are being setup to support X70 localization with the support of MAI and Geely supply chain.

Forecast. Unchanged.

Maintain BUY with SOP derived TP: RM2.80. We believe X70 to be a game changer to Proton and potentially turnaround in FY03/20. Geely has continued to show its strong commitment towards Proton’s turnaround and establish it as a major automotive player in ASEAN market.

Source: Hong Leong Investment Bank Research - 12 Oct 2018