Proton’s  Iriz  will  likely  be  a  strong  contender  in the  B-segment,  more than  capable  of  taking market  share  away  from  an  increasingly  dated Perodua  Myvi.  Maintain  BUY  with  MYR3.20  TP,  a  42%  upside.  Export success  may  be  harder  to  achieve,  as  Proton  continues  to  lack economies of scale. We think the  Iriz  may  support an interim re-rating of  DRB-HICOM’s  battered  share  price,  although the ability  to  test  new highs may take longer to achieve. 

Positive  first impressions.  RHB  test  drove  Proton’s latest model, the Iriz  on  launch  day  at  the  Proton  Edar  showroom  at  Jalan  Ampang.  In fact, we were the first  to test drive the  Iriz  1.6 CVT Executive model at this outlet. Our first impressions are positive - the Iriz looks very modern, performs well in an urban environment, is  comfortable and spacious. All models  are  well-specified  with  safety  equipment  like  anti-lock  brake system  (ABS),  electronic  brake-force  distribution   (EBD),  brake  assist, stability control, hill hold assist, isofix mounts and dual front airbags (top spec  Premium has  six  airbags).  The  Iriz  also  enjoys  a  five-star  Asean New  Car  Assessment  Programme  (NCAP)  crash  rating  with  scores significantly ahead of other local competitors. We expect the  Iriz platform to eventually spawn a sedan version that could replace the Saga.

Avalanche  of  bookings.  At  the  launch,  management  revealed  that  it already  has  17,000  bookings  in  hand.  It  will  be  interesting to  see  how many bookings actually translate into actual  vehicle deliveries given the high  60%  financing  rejection  rate  for  the  purchase  of  cars  in  this category.  Proton’s challenges are far from over even if the Iriz  proves to be a domestic sales success. That said,  it does provide a  financial base to  reinvest  in  the  development  of  other  models.  Its  two  best-selling models,  the  Exora  and  Saga,  are five and seven years old respectively. A  key  challenge  is  raising  economies  of  scale  and  consolidating  its manufacturing  assets  in  Tanjung  Malim,  which  will  likely  facilitate  the redevelopment of  the  Shah  Alam plant.  The  export  potential  of the  Irizwill also be important, although the penetration of developed markets will likely be complicated by Euro-6 emissions regulations.

Reiterate BUY.  Mass production and deliveries  of the  Iriz  will begin in October.  We  believe  there  is  a  strong  chance  that  it  will  achieve domestic success as Proton gradually overcomes entrenched long-term prejudices  in  the  market.  The  potential  sales  success  should  help  to support an interim re-rating of DRB-HICOM’s share price back to at least MYR2.50. Our SOP-derived valuation is MYR3.20. BUY.

Source: RHB