1H19 CNL of RM68m, compared to CNP of RM297m in 1H18, and vs. our/consensus RM351m/RM56m full-year net profit forecasts. We consider the results to be within our expectation in anticipation of better subsequent quarters, especially with the launching of the all-new Proton X70 on 12th December 2018. Maintain MARKET PERFORM with a lower SoP TP of RM2.00 (from RM2.35) as we revised our SoP composition to reflect the recent corporate development as well as a lower target price attached to POS Malaysia.

1H19 deemed in line. 1H19 Core Net Loss (CNL) came in at RM68m, compared to Core Net Profit (CNP) of RM297m in 1H18, and vs. our/consensus RM351m/RM56m full-year net profit forecasts. We consider the results to be within our expectation in anticipation of better subsequent quarters, especially with the launching of all-new Proton X70 on 12th December 2018. No dividend was declared for the quarter as expected.

YoY, 1H19 Core Net Loss (CNL) of RM68m, compared to Core Net Profit (CNP) of RM297m in 1H18 was dragged down by losses from the automotive sector, particularly from sales revenue foregone following the disposal of Lotus and lower vehicles sales by PROTON at 36,390 units (-1%), but cushioned by the higher share of profits from associated companies (+14%), namely Honda, which recorded steady sales at 55,733 units (+8%). Elsewhere, higher revenue contribution by banking segments, Aviation (CTRM), and concession (Puspakom) offset lower contribution from property and logistics segments.

QoQ, 2Q19 CNL of RM1m narrowed from CNL of RM67m in 1Q19, mainly due to higher sales (+20%), largely contributed by the automotive sector (+37%) during the zero-rated tax holiday which boosted both PROTON units sales at 22,127 units (+55%) and Honda units sales at 28,561 units (+5%) as well as supported by the services sector’s improved contribution.

Outlook. Proton’s first sport-utility vehicle (SUV) model, based on Geely’s Boyue platform, known as Proton X70 was on track to be officially rolled out on 12th December 2018. 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 fully 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.

Maintain MARKET PERFORM with a lower SoP TP of RM2.00 (from RM2.35) as we revised our Sum-of-Parts (SoP) composition to reflect the recent corporate development as well as a lower target price attached to POS Malaysia (corresponding downgrade of TP from RM3.10 to RM2.95 by Kenanga Research).

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

Source: Kenanga Research - 30 Nov 2018