DRBHCOM (1619) - DRB-Hicom - Oriental as Proton’s dealer?
Target RM2.30 (Stock Rating: HOLD)
Proton is in negotiations with Oriental Holdings Bhd for Oriental to set up a Proton dealership business, The Edge reported during the weekend. We view this development positively as we believe Oriental’s financial strength and industry experience will be a perfect fit for Proton’s strategy of growing its 3S dealerships as part of its dealership rationalisation process. As it is still too early to quantify the financial impact of the potential partnership, we make no changes to our EPS forecasts and NTA-based target price. We maintain our Hold recommendation due to the lingering concerns about continued losses at Proton. Switch to Berjaya Auto, our sector top pick.
What Happened
The Edge Weekly reported during the weekend that, according to industry sources, DRB’s wholly-owned subsidiary Proton Holdings Bhd (Proton) is in talks with Oriental Holdings Bhd (Oriental) for Oriental to set up a Proton dealership business. According to a source, negotiations have been ongoing for a while and the two parties are close to inking an agreement. Oriental is also understood to be reviewing its dealership of Hyundai vehicles with Sime Darby Bhd as the deal with Sime is not going very well for Oriental.
What We Think
We are not really surprised by the news. As mentioned in our previous report, Proton’s management is rationalising its dealers by closing non-performing dealers while focusing on increasing the number of 3S dealerships. The strategy aims to improve sales and provide higher-quality services as well as speedier delivery of new cars to customers. Assuming the news is true, we are positive on the potential partnership as Oriental is a respected name in the local automotive industry. Previously the licensed distributor of Honda and certain Hyundai models in the country, Oriental still has dealerships for Hyundai, Honda and Mitsubishi vehicles. With Proton lacking big 3S centres, we believe Oriental has the financial strength and industry experience to become a reliable partner in developing Proton’s 3S dealerships in the most efficient way, which fits well into Proton’s long-term strategy.
What You Should Do
Stay on the sidelines. Although we believe the potential partnership with Oriental is a step in the right direction for Proton, the deal is still in the negotiation stages and it is too early to quantify the impact of the partnership on Proton’s future turnover and earnings. Switch to Berjaya Auto, our top pick for the sector.
Source: CIMB Daybreak - 21 April 2015
Target RM2.30 (Stock Rating: HOLD)
Proton is in negotiations with Oriental Holdings Bhd for Oriental to set up a Proton dealership business, The Edge reported during the weekend. We view this development positively as we believe Oriental’s financial strength and industry experience will be a perfect fit for Proton’s strategy of growing its 3S dealerships as part of its dealership rationalisation process. As it is still too early to quantify the financial impact of the potential partnership, we make no changes to our EPS forecasts and NTA-based target price. We maintain our Hold recommendation due to the lingering concerns about continued losses at Proton. Switch to Berjaya Auto, our sector top pick.
What Happened
The Edge Weekly reported during the weekend that, according to industry sources, DRB’s wholly-owned subsidiary Proton Holdings Bhd (Proton) is in talks with Oriental Holdings Bhd (Oriental) for Oriental to set up a Proton dealership business. According to a source, negotiations have been ongoing for a while and the two parties are close to inking an agreement. Oriental is also understood to be reviewing its dealership of Hyundai vehicles with Sime Darby Bhd as the deal with Sime is not going very well for Oriental.
What We Think
We are not really surprised by the news. As mentioned in our previous report, Proton’s management is rationalising its dealers by closing non-performing dealers while focusing on increasing the number of 3S dealerships. The strategy aims to improve sales and provide higher-quality services as well as speedier delivery of new cars to customers. Assuming the news is true, we are positive on the potential partnership as Oriental is a respected name in the local automotive industry. Previously the licensed distributor of Honda and certain Hyundai models in the country, Oriental still has dealerships for Hyundai, Honda and Mitsubishi vehicles. With Proton lacking big 3S centres, we believe Oriental has the financial strength and industry experience to become a reliable partner in developing Proton’s 3S dealerships in the most efficient way, which fits well into Proton’s long-term strategy.
What You Should Do
Stay on the sidelines. Although we believe the potential partnership with Oriental is a step in the right direction for Proton, the deal is still in the negotiation stages and it is too early to quantify the impact of the partnership on Proton’s future turnover and earnings. Switch to Berjaya Auto, our top pick for the sector.
Source: CIMB Daybreak - 21 April 2015
