This article first appeared in The Edge Financial Daily, on April 12, 2016.

DRB-Hicom Bhd
(April 11, RM1.09)
Maintain buy with a higher TP of RM1.30 from RM1.14: We believe Proton is already trading close to valuations and presents a strong case from a risk-reward perspective.

DRB-Hicom Bhd owns other profitable businesses and valuable assets, but trades at a fraction of its book value. Applying a price-to-book value (P/BV) of 0.35 times, that is a 50% discount to its five-year median P/BV, deriving a TP of RM1.30.

The higher TP is to reflect the increased impetus to prioritise a sustainable turnaround at Proton that could be a major rerating catalyst for DRB-Hicom.

The government has approved Proton’s application for a RM1.5 billion soft loan after a cabinet meeting last Friday.

The funding, which would help Proton meet its immediate financial commitments, comes a week after former prime minister Tun Dr Mahathir Mohamad resigned from his position as chairman of the national carmaker.

While Dr Mahathir is Proton’s biggest supporter, his political stance has affected the company’s ability to secure additional government assistance.

International Trade and Industry Minister Datuk Seri Mustapa Mohamed said the cabinet agreed to the loan on the condition that Proton formulates a comprehensive turnaround plan to improve its competitive edge at the international level.

He said Performance Management and Delivery Unit chief executive officer (CEO) Datuk Seri Idris Jala would head a special task force overseeing this turnaround, which would also include three government appointments and three appointments from the private sector.

In an earlier statement, Mustapa said government assistance was conditional on the identification of a foreign strategic partner.

In addition to a new CEO, we expect to see some new Proton models emerging over the next 12 to 18 months, beginning with Perdana.

This is a D-segment product that uses a reskinned version of the previous-generation Honda Accord. A new Persona, which is a sedan version of the Iriz hatchback, is expected by end-2016. The first product from the collaboration with Suzuki is reported to be a three-row, seven-seater multipurpose vehicle. 

New product offerings should freshen Proton’s model line-up and appeal to a wider range of potential customers. — RHB Research, April 11