Lower vehicle sales and Lotus turnaround may impact earnings
PROTON Holdings Bhd is not expected to post sterling financial results for its second quarter ended Sept 30.
Motor analysts said the national carmaker experienced slightly lower vehicle sales year-on-year during its second quarter and the cost of the turnaround exercise for Proton's loss-making subsidiary Group Lotus was likely to continue to be a drag on profits.
For the July-September period this year, Malaysian Automotive Association (MAA) reports showed that Proton's vehicle sales dipped 2.5% year-on-year to 39,216 units (compared with 40,205 units in the same period in 2010).
Proton's vehicle sales was also lower by 2.8% quarter-on-quarter.
The top-selling cars were the current-generation Proton Saga, followed by the Persona, Exora MPV (multi-purpose vehicle) and Inspira.
Proton is expected to announce its second quarter (Q2) financial results before the end of this month.
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| Syed Zainal says no MBO plans have been submitted. |
“We understand that Proton's vehicle export numbers are also down and that its cash is depleting fast. We are not optimistic about its Q2 results,” said a bank-backed motor analyst.
Another analyst pointed out that Group Lotus would be a crucial “swing factor” for Proton's Q2 earnings.
Proton had posted a steep 94.6% year-on-year drop in net profit to RM4.55mil for its first quarter ended June 30, compared with a net profit of RM84.68mil a year earlier.
The national carmaker attributed the huge decline in earnings to higher expenses incurred by Lotus Group International Ltd in the rebuilding of its brand and restructuring costs.
For its first quarter, revenue also dipped 2.5% year-on-year to RM2.23bil (compared with RM2.29bil a year ago).
The group's cash and cash equivalents as at June 30, 2011 stood at RM1.382bil (compared with RM1.549bil a year ago).
Meanwhile, a recent sharp jump in Proton's share price gave rise to speculation on a management buyout (MBO) as well as rumours of takeover proposals for the national carmaker.
Proton's share price had gained 83 sen over two days to close last Wednesday at RM3.53.
However, Proton's stock subsequently dipped to close last Friday at RM3.27.
Proton's management had told motor analysts that it was not aware of any material developments or updates which could have caused the sharp spike in the group's share price.
While motor analysts were sceptical about rumours of a takeover bid for Proton, a motor industry observer said a potential corporate exercise for the national carmaker could not be dismissed in view of the Government's plan to rationalise the portfolio of GLCs (government-linked companies).
The Government's investment holding arm, Khazanah Nasional Bhd has a 42.74% stake in Proton, while the Employees Provident Fund (EPF) and Petroliam Nasional Bhd (Petronas) have stakes of 10.78% and 7.85% respectively.
Last week, Proton group managing director Datuk Seri Syed Zainal Abidin Syed Mohamed Tahir was reported as saying an MBO would be worth considering if such an offer was made.
However, Syed Zainal added that no MBO plans had been submitted.
Proton has a market capitalisation of about RM1.79bil, based on last Friday's closing share price.
CIMB Research motor analyst Loke Wei Wern reckoned that while Proton's management seemed to be open to an MBO, pricing and financing were the key hurdles to such a move.
“Proton's share price is presently well below Khazanah's estimated entry price of around RM8. Still, we do not rule out the possibility of an MBO,” she said in a recent note.
Loke also noted that an MBO might not help to address immediately the structural issues plaguing the group.
Loke maintained a “neutral” call on Proton's stock, and a target price of RM3.05 per share.
Meanwhile, Kenanga Research maintained a “market perform” call on Proton's stock, and a target price of RM3.04 per share.
“We are keeping our forecasts unchanged at this juncture until further details surface,” said Kenanga Research in a note.
Another analyst said a possible rationale for an MBO could be Proton's management feeling that investors are undervaluing its stock.
A recent report from AmResearch had estimated Proton's adjusted net tangible assets (NTA) per share at RM5.26.
“The management can mount a takeover and privatise the group. In a few years, when the group is doing better, they can list Proton again,” said the analyst.
Still, the outlook for Proton is not too gloomy. CIMB Research noted that for the first 10 months of 2011, Proton recorded a 2.2% year-on-year jump in vehicle sales to 136,589 units.
Presently, the national carmaker also has a lot on its plate as it strives for further growth.
Upcoming new models include a sedan codenamed “P3-21A”, which is due to be launched early next year.
Syed Zainal was recently reported as saying the “P3-21A” would have a turbo-charged Campro engine.
The “P3-21A” and Exora are products being considered in Proton's talks with Hawtai Motor Group Ltd in China.
Last month, Proton and Hawtai Motor signed a memorandum of understanding to evaluate the possible setting up of a joint-venture company in China to develop new models together.
Proton is also in talks with Japan's Mitsubishi Motors Corp on strategic collaborations regarding joint production of engines in Malaysia and consignment production of Mitsubishi vehicles at the Proton facility in Tanjung Malim, Perak.
AmResearch had estimated that capacity utilisation of Proton's facility in Tanjung Malim could improve to over 90% from the current 52%, if the contract assembly of Mitsubishi's global small car materialises.
