This article first appeared in The Edge Financial Daily on October 15, 2018
Automotive sector
Maintain neutral: We were among 20 analysts and fund managers invited to an exclusive preview of the Proton X70 at Sheraton Petaling Jaya last week, hosted by Proton’s management team. Although Proton did not disclose the selling price for X70, we expect this C-segment sport utility vehicle (SUV) to be competitively priced relative to its peers at between RM120,000 and RM140,000. In addition, we were excited to learn that Proton had received encouraging pre-orders of over 5,000 units since bookings became available in September.
The X70 will be Proton’s first SUV model and marks its first new model since Geely’s entry as a strategic partner in September 2017. The group explained that the rationale for X70 was partly due to the relatively lower SUV penetration rates in Malaysia and Southeast Asia, at just 11.5% and 15% of total industry volume in 2017. Proton sees the potential SUV market penetration rate in Malaysia growing from 11.5% to 20% in 2020 and 30% in 2025, which is still below the current global mean rate of 34%.
Proton is investing RM1.2 billion to expand the production capacity of its Tanjung Malim plant to cater to the manufacturing of the next-generation Proton models, starting with locally assembled X70. This is part of the group’s strategy to transform Tanjung Malim into a research and development and production hub for right-hand drive models under Geely. The investment will be funded internally by Proton. The first phase of the expansion will include the construction of the body in white building, sub-assembly building, extension of trim and final and logistics facilities. Following the completion of the first phase in March 2019, the plant will have annual production capacity of 150,000 units per annum.
In addition, Proton has also secured the rights to use the intellectual property (IP) to manufacture and sell three Geely models for the next 10 years in Brunei, Indonesia, Malaysia, Singapore, and Thailand. The three models are the Boyue SUV, Geely SX11 SUV, and VF11 MPV. The agreement was signed between Geely Automobile and Zhejiang Geely Holdings, the joint owner of Proton. The total licence fee for the IP is 1.34 billion yuan (RM804 million). Overall, we believe this is part of the group’s strategy to ride on the growing SUV penetration rates in Malaysia and Southeast Asia. — CGSCIMB Research, Oct 11