9M18 core profit came in at RM299.4m compared to our net profit forecast of RM334m and consensus net loss of RM293m. We consider the results to be within our forecast considering the volatile quarterly earnings. We are keeping our FY18E and FY19E forecasts unchanged. Reiterate MP rating and raise SoP-derived target price from RM1.80 to RM2.50 (reduce holding company discount from 25% to 10% due to optimism on Proton’s strategic partner in delivering performance over the longer term.

9M18 inline with ours but above consensus. 9M18 core profit recorded at RM299.4m compared to our net profit forecast of RM334m and consensus net loss of RM293m. We consider the results to be within our forecast considering the volatile quarterly earnings. No dividend was declared in this quarter as expected.

Key Result Highlights. QoQ, 3Q18 core PATAMI came in at RM146.5m excluding: (i) impairment loss on certain assets (RM121.2m), and (iii) Proton’s restructuring costs (RM32.9m) compared to 2Q18 core net profit of RM322.6m dragged down by losses at Automotive despite higher revenue (+10%). Proton registered lower sales volume (-13% QoQ). However, Honda sales volume jumped 17%. The performances in the services and property segment were largely flat.

YoY, 9M18 core reported PATAMI came in at RM299.4m excluding recognition of R&D grant (RM1.1b - DRB’s share via effective 50.1% stake is RM561m), loss on disposal of Lotus (RM97.6m), Proton’s restructuring costs (RM122.7m) and impairment loss on certain assets (RM121.4m) compared to a loss of RM127.m in 9M17 due to reduction of losses at Proton following the completion of Proton’s corporate exercise and boosted by courier and logistics business of Pos Malaysia. The better performances were further boosted by contributions from property division due to higher on-going construction projects namely Northern Gateway Infrastructure and Media City.

Outlook. A new manufacturing plant in Tanjung Malim will be ready in five years’ time, but the first Proton car made with Geely’s technology will roll out by 2019. Geely will facilitate Proton in terms of technology and at the same time assemble its four-wheel drive model, intelligent artificial car and develop their right-hand drive technology in Malaysia known as the Boyue. While Geely is more popularly known for its successful acquisition of Volvo, the ability of Geely to assist Proton from technical and marketing perspective as well as to penetrate new markets remains a question mark given that Geely is also a relatively minor brand from a global perspective. Proton still has to deal with the challenges posed by increasing competition and weak brand perception.

Maintain Market Perform. Our SoP-derived target price is raised from RM1.80 to RM2.50, as we have factored in Pos Malaysia (TP of RM5.00) into our SoP calculations. We are attaching a lower holding company discount from 25% to 10% due to optimism on Proton’s strategic partner in delivering performance over the longer term.

Key risk to our call is slower-than-expected roll-out of new models under the new Geely-Proton management.

Source: Kenanga Research - 1 Mar 2018