Price reduction for Proton’s X70 expected with knocked-down version

This article first appeared in The Edge Financial Daily, on June 14, 2019.
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DRB-Hicom Bhd
(June 13, RM2.17)
Maintain hold with a fair value of RM1.78:
National carmaker Proton has announced that it had entered into a joint venture (JV) with a local telecommunications company Altel Communications and a China-based company EcarX (Hubei) Technology.

EcarX is a limited liability company in Hubei, China that focuses on intelligent automobile and network connect ion providing digital infotainment products, active safety electronic products, unmanned sensors and controllers, as well as the operation services of the Internet of Vehicles cloud platform and Big Data platform.

This JV is aimed at helping Proton develop more of its own digital technology and car connectivity systems. The company guided that the JV will allow Proton to explore the possibility of expanding its connectivity solutions to Proton’s export markets, particularly in neighbouring Asean countries. We think that this will be beneficial for the group in the long term as this complements Proton’s focus to equip future Geely-based model vehicles with advanced connectivity and technology.

We are mildly positive about this announcement in the long term as there will be technology transfer to Proton and this will assist the company in winning back consumer confidence while staying competitive in the local automotive space with more to offer compared with other competitors.

Proton also reiterated its aim to begin production of the X70 in its Tanjung Malim plant in the second half of 2019. We expect to see a price reduction for the popular sport utility vehicle (SUV) with the introduction of the completely knocked-down version to continue supporting the strong demand for the vehicle. We also look forward to the launch of the Proton X50 by the end of the year. We believe that the local automotive SUV landscape will be shifted with the introduction of the X50.

We do not see the JV having any significant impact to earnings in the short term for DRB-Hicom Bhd in its financial year 2020. — AmInvestment Bank, June 13