By RAHIMI YUNUS / Pic By MUHD AMIN NAHARUL
Proton Holdings Bhd is set to rise to the top of the regional automotive space when it enters the Chinese market after a recent agreement sealed with Zhejiang Geely Holding Group Co Ltd.
“Proton will leverage on Geely’s technology and platforms for exciting new models’ line-up and achieve its aspirations of reclaiming market leadership in Malaysia and becoming one of the top three original equipment manufacturers in Asean,” Hong Leong Investment Bank Bhd (HLIBB) said in a report.
At present, China is the world’s largest market for cars with 24 million units delivered last year, eclipsing what Proton achieved in the Malaysian market with a mere 590,000.
Geely, who owns 49.9% of Proton, sold over one million units domestically for a 4%-5% market share.
Proton, via its 50.1%-owner DRB-Hicom Bhd, inked a heads of agreement with Geely to set up a joint-venture (JV) company in China, in which both entities will take up equal equity. The deal will allow Proton to fast-track its entry into the Chinese market and subsequently accelerate its turnaround plan.
The JV entails the set-up of a production facility in China to assemble vehicles, and the development of a network of dealers to market Proton car models in China.
Kenanga Research, in its report yesterday, said the agreement in China would help Proton’s turnaround plan and is in line with its 10-year business plan to capture a 10% share of the regional market. The former national carmaker will also gain access to Geely’s green-car technology and basic vehicle platform, which includes Volvo Cars.
“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,” Kenanga noted in the report.
RHB Research stated the market will remain fragmented due to fierce competition, which in turn poses a risk to Proton if it over-stretches and expands too quickly before it manages to consolidate the domestic market and its manufacturing facilities.
“Overstretching could place demands on DRB-Hicom to keep funding Proton,” the research firm said.
Analysts largely believe DRB-Hicom will use part of the funds from its recent disposal of a 97.4% stake in Alam Flora Sdn Bhd for RM945 million for Proton’s capital expenditure.
HLIBB has maintained its ‘Buy’ call on DRB-Hicom with an unchanged price of RM2.62.
Similarly, Kenanga has kept its ‘Outperform’ rating on DRB-Hicom with a target price (TP) of RM2.55, while RHB has kept its ‘Buy’ call with an unchanged TP of RM2.67.
DRB-Hicom and Geely are expected to incorporate the JV within the first half of 2019, while the downside risks include delays in Proton’s new car launches under the new Geely-Proton management.
DRB-Hicom closed 3.81% or nine sen higher yesterday at RM2.45 on the positive sentiments surrounding Proton.