9M19 CNP of RM5m reported, compared to CNP of RM226m in 9M18, and vs. our/consensus RM351m/RM81m full-year net profit forecasts. We consider the results to be within our expectation in anticipation of a better 4Q. Note that, 3Q19 recorded significant turnaround with CNP of RM73m after 4 quarters of losses, and also marks the first recognition of unit sales from all-new Proton X70 (as of to-date, 7k units delivered, 18k booking). Maintain MP with an unchanged SoP derived TP of RM1.80.

9M19 deemed in line. 9M19 CNP of RM5m reported, compared to CNP of RM226m in 9M18, and vs. our/consensus full-year net profit forecasts of RM351m/RM81m, respectively. We consider the results to be within our expectation in anticipation of better a 4Q. Note that, 3Q19 recorded significant turnaround with CNP of RM73m after 4 quarters of losses, and also marks the first recognition of unit sales from all-new Proton X70, which was launched on 12th December 2018. No dividend was declared for the quarter as expected.

YoY, 9M19 CNP of RM5m reported, compared to CNP of RM226m in 9M18, dragged down by losses from the automotive sector arising from (i) sales revenue foregone following the disposal of Lotus, (ii) flattish vehicles sales by PROTON at 51,901 units (-1%), and (iii) lower share of profits from associated companies (-10%), namely Honda, which recorded lower sales at 78,100 units (-5%), as consumers held back purchases in anticipation of new models. Honda has only recently launched face-lifted Honda HR-V, and Mugen variants of Honda Jazz and BR-V, whereas Proton recently launched the face-lifted Proton Iriz. Elsewhere, higher revenue contribution by its banking segment, aviation (CTRM), and concession (Puspakom) offset lower contribution from automotive and property segments.

QoQ, 3Q19 recorded significant turnaround with CNP of RM73m from core losses of RM68m in 2Q19, mainly from turnaround in the Automotive segment’s profit contributions of RM1m compared to segment losses of RM327m in 2Q19, which we believe was contributed by PROTON, especially with the first batch sales of higher margin allnew Proton X70. This turnaround more than offset the lower sales at all segmental levels with lower PROTON units sales at 22,367 units (- 30%) and Honda units sales at 15,511 units (-22%). 2Q19 was a higher base from the zero-rated tax holiday sales.

Outlook. Proton X70 has been rolled out on 12th December 2018. 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 be rolled out by 2H19. Geely will facilitate Proton in terms of technology and at the same time assemble its fourwheel drive model, artificial intelligent car and develop their right-hand drive technology in Malaysia. PROTON has recently launched the facelifted Proton IRIZ based on the Proton X70 design, and will roll out facelifted variant of its popular Proton Persona soon.

Maintain MARKET PERFORM with Sum-of-Parts (SoP) TP of RM1.80 implying PER of 9.4x based of FY20E EPS. 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 2019