1Q19 Core Net Loss (CNL) of RM66.6m narrowed, compared to a loss of RM182m in 1Q18, and vs. our/consensus RM351m/RM64m full-year net profit forecasts. We consider the results to be within our expectation in anticipation of better subsequent quarters. Since the share price has rose 30% since our upgrade in the previous quarter, and due to lowered target price attached to POS Malaysia, we downgrade our SoP TP from RM2.55 to RM2.35. Downgrade from OP to MP.

1Q19 Core Net Loss (CNL) of RM66.6m narrowed, compared to a loss of RM182m in 1Q18, and vs. our/consensus RM351m/RM64m full-year net profit forecasts. We consider the results to be within our expectation in anticipation of better subsequent quarters.

Key result highlights. QoQ, 1Q19 revenue declined 15% due to lower sales from the automotive sector (-33%) but mitigated by contribution from Aviation (CTRM) and automotive components (HAMM and PHN) and solid sales from associate Honda. Overall, 1Q19 CNL of RM66m was due to reduction in losses from the automotive sector and declining profit at POS Malaysia Berhad.

YoY, 1Q19 CNL of RM66m was due to reduction in losses from the automotive sector, higher share of profits from associated companies namely Honda which recorded steady sales (+7.6%), and better contribution from property underpinned by Improved business performance by Media City, which largely contributed to segmental boost in revenue. Elsewhere, higher revenue contribution by Aviation (CTRM) and concession (Alam Flora and Puspakom) offset lower contribution from banking and logistics segments.

Outlook. Proton’s first sport-utility vehicle (SUV) model, based on Geely’s Boyue platform is on track to roll out in 4QCY18. The first batch is expected to be China-built, while the complete knocked-down (CKD) version will come out somewhere in 2HCY19. Proton is in the midst of finalising a 10-year business road map targeting 30% share of the domestic market and 10% of regional market via introduction of new models. Specifically, the group is targeting to expand its products portfolio in the A, B, SUV and MPV segments for their export market. 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, artificial intelligent car and develop their right-hand drive technology in Malaysia known as the

Boyue.

Downgrade from OUTPERFPORM to MARKET PERFORM. Since the share price has rose 30% since our upgrade in the previous quarter, and due to lowered target price attached to POS Malaysia (corresponding downgrade of Kenanga Research TP from RM3.95 to RM3.10), we downgrade our SoP TP from RM2.55 to RM2.35. Downgrade from OP to MP.

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

Source: Kenanga Research - 29 Aug 2018