We are positive on the establishment of Proton’s assembling plant in Pakistan. The plant is owned by Al-Haj Group (the exclusive distributor/assembler for Proton in Pakistan) and will be exclusive to assemble Proton vehicles for Pakistan market and potential export to the regional South Asia market. The plant marks an important milestone for Proton to expand its export market and become an international OEM. We maintain BUY on DRB with unchanged TP: RM2.58, based on 10% discount to SOP: RM2.87, as we believe the strong demand for Proton’s new X70 will provide confidence to the market on Proton’s subsequent new model launches (based on Geely platform).

NEWSBREAK

New Proton plant in Pakistan. The media reported that DRB’s 50.1% owned Proton will collaborate with a local Pakistan partner, Al-Haj Motors to establish a manufacturing assembly plant in Pakistan, its first in the South Asia region. Prime Minister Tun Dr Mahathir Mohamad and his Pakistani counterpart Imran Khan are expected to witness the symbolic groundbreaking ceremony of Proton’s plant tomorrow.

HLIB’s VIEW

Al-Haj. Al-Haj Group is a leading business group involved in transportation, oil, tires and also the authorized distributor/assemblers of FAW products and Hyundai Heavy Commercial products in Pakistan, indicating that the group has a diversified experience in automobile sector of Pakistan.

Proton and Al-Haj. We understand that Al-Haj is the exclusive authorized distributor and assembler of Proton vehicles in Pakistan, following an official signing ceremony back in Aug 2018. It was reported back then that Al-Haj planned to introduce modern and high tech vehicles in different categories including entry level sedans, mid-level sedans, crossovers/SUVs, MPV and hatchbacks in Pakistan. The vehicles will be equipped with the latest and state of the art technologies. Al-Haj had already acquired land for an assembly plant for Proton cars nearby Port Qasim area in Karachi. Al-Haj will own the assembly plant by itself, while Proton will provide the necessary technical support to Al-Haj.

Positive. We are positive with the new Proton plant set up in Pakistan, in order to cater for the local Pakistan market, as well as potentially, the regional South Asia market. We understand that Proton will not incur capex for the Pakistan assembling plant, as Proton does not own the plant. The plant set up marks an important milestone for Proton to expand its export market and become an international automotive OEM.

Forecast. Unchanged.

Maintain BUY, TP: RM2.58. We maintain BUY recommendation on DRB with unchanged TP: RM2.58 (10% discount to SOP: RM2.87). Operationally, Proton’s new SUV X70 has received encouraging sales order of over 20k units since official launch in Dec 2018, with over 5k units delivered. The successful launch of X70 will provide confidence to investors on Proton’s subsequent new model launches (based on Geely platform) and the continued strong support from Geely in turning around Proton. Proton is expected to introduce the new Geely based MPV model and B-segment SUV model in 2019-2020.

Source: Hong Leong Investment Bank Research - 22 Mar 2019