DRB-Hicom Bhd
(Sept 26, RM2.27)
Maintain “buy” with target price of RM3.20: RHB test drove Proton’s latest model, the Iriz 1.6 CVT Executive, on launch day at the Proton Edar showroom in Jalan Ampang. Our first impressions are positive — the Iriz looks very modern, performs well in an urban environment, is comfortable and spacious. All models are well-specified with safety equipment such as anti-lock brake system (ABS), electronic brake-force distribution (EBD), brake assist, stability control, hill hold assist, isofix mounts and dual front airbags (top spec Premium has six airbags).

The Iriz also enjoys a five-star Asean New Car Assessment Programme (NCAP) crash rating with scores significantly ahead of other local competitors. We expect the Iriz platform to eventually spawn a sedan version that could replace the Saga. At the launch, management revealed it already has 17,000 bookings in hand. It will be interesting to see how many bookings actually translate into actual vehicle deliveries, given the high 60% financing rejection rate for the purchase of cars in this category. Proton’s challenges are far from over, even if the Iriz proves to be a domestic sales success. That said, it does provide a financial base to reinvest in the development of other models.

A key challenge is raising economies of scale and consolidating its manufacturing assets in Tanjung Malim, which will likely facilitate the redevelopment of the Shah Alam plant. The export potential of the Iriz will also be important, although the penetration of developed markets will likely be complicated by the Euro-6 emissions regulations.

Mass production and deliveries of the Iriz will begin in October. We believe there is a strong chance that it will achieve domestic success as Proton gradually overcomes entrenched long-term prejudices in the market. The potential sales success should help to support an interim rerating of DRB-Hicom’s share price back to at least RM2.50. — RHB Research, Sept 26

This article first appeared in The Edge Financial Daily, on September 29, 2014.