OSK Investment Research has raised its target price for Proton Holdings Bhd from RM1.64 to RM1.81 after the national carmaker’s announcement of a non-equity partnership agreement with Mitsubishi Motor Corp (MMC).
The agreement would involve a possible rebadging exercise and to develop a new small hatchback car to be released in 2010.
“However, we view the agreement as being more favourable to MMC pending the confirmation of Proton’s rebadged model by Mitsubishi,” it said in a report released on Tuesday.
The research house was revising its earnings assumptions for FY10 onwards to incorporate its new capital expenditure assumptions given the lower depreciation expense arising from the strategic tie-up.
OSK Research said FY11 included a higher volume assumption of the Waja, which sources claim would likely be a rebadged Lancer, thus boosting potential revenue.
“This raises our target price from RM1.64 to RM1.81 but we maintain a Neutral due to the upward revision in earnings by 12% and 22% for FY10 and FY11 respectively,” it said.
Last Friday, Proton announced it had entered into a strategic partnership with Mitsubishi. It favoured this move given its similar technology platform tracing back to its first model of the Saga based on the Lancer platform.
Rebadging is common amongst automakers in their attempts to cut research and development expenses as well as production and marketing costs. Proton has finally jumped on the bandwagon in order to revitalise its fleet of upcoming models by taking the shortcut.
OSK Investment Research said this would reduce research and development (R&D) expenses over the shorter term to be shared with MMC.
It had reduced its estimated R&D expenses by RM11mil to RM45mil from FY10 onwards, at similar levels back in FY03 when MMC was still Proton’s strategic partner.
“Our capex estimates have been fine tweaked accordingly to RM429mil from RM600mil in FY10 and FY11. A company source claims that the new Waja, slated to be replaced by 2010, would be based on the Lancer or Galant.
“Given this possibility, we have changed our assumptions of the Waja come FY11 from 5,000 units to 25000 units on higher demand, effectively increasing our revenue estimates by 11%,” it said.
OSK Research said given the potential savings from R&D expenses, lower depreciation costs and the higher volume assumption of the Waja, it was revising upwards its bottomline estimates by 12% (RM21.59mil) and 20% (RM36.64mil) respectively for FY10 and FY11.
Source: The Star