It was reported that 51%-owned Proton Holdings Berhad and Zhejiang Geely Holding Group (Proton's 49% partner) have inked a Heads of Agreement (HOA) to set up a joint venture that will pave the way for Proton to assemble and market their cars in China. This latest corporate development will further enhance a turnaround in fortunes for Proton as well as re-enforcing its ambitious plans to penetrate the exports market. BUY with a TP of RM2.55. 

The HOA apart from paving the way for Proton to assemble and market their cars in China, also provides existing Proton platforms that are found suitable to be developed into models for the Chinese market. In our view, Geely's entry as a strategic partner into Proton has fast-tracked an easier route for Proton to gain entry into the lucrative Chinese market which is in line with Proton's 10-year business plans targeting 10% share of regional markets. 

Zhejiang Geely Holding Group will allow Proton to access its green car technology, as well as basic vehicle platform technologies which Geely has developed jointly with its wholly-owned unit- Volvo Cars of Sweden. By offering some of its own technology, Geely hopes it can also lift Proton sales in right-hand-drive markets, including Britain, India and Australia Both parties are expected to incorporate the JV within 1H 2019. 

Geely sold over 1m units domestically in a calendar year or with an estimated 4-5% market share. Meanwhile, Proton's first sport-utility vehicle (SUV) model, based on Geely's Boyue platform is on track to roll out in 4Q 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 targeting to expand its products portfolio in the A, B, SUV and MPV segments for their export market. A new manufacturing plant in Tanjung Mal im will be ready in five years' time, but the first Proton car made with Geely's technology will roll out by 2019. 

Source: Rakuten Research - 20 Aug 2018