Proton's turnaround initiatives to be positive re-rating catalyst for DRB-Hicom, says RHB Research

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KUALA LUMPUR (Oct 2): RHB Research Institute Sdn Bhd has maintained its "buy" call on DRB-Hicom Bhd with an unchanged target price of RM2.92 and said it sees Proton's turnaround initiatives will be a positive re-rating catalyst for the group.

At 10.36am today, DRB-Hicom was up 2 sen or 0.94% at RM2.16 with 786,500 shares traded.

In a note today, RHB analysts Muhammad Afif Zulkaply and Alexander Chia said the team is positive on Proton's efforts to improve its image, having visited the upgraded Proton centres and considering the favourable initial market response to the new Proton X70.

"The overall improvement and standardisation is part of Proton's initiative to rebrand its corporate identity to give the centres a more exclusive look and aspirational feel," the note read.

"Moving forward, Proton will focus more on 3S and 4S centres by incentivising dealers to upgrade their centres — one new dictate is only allowing upgraded centres to sell upcoming models. This should improve overall dealership network management and translate into better customer service quality," it added, noting that Proton has now achieved 92% (or 100 outlets) of its 102 total target, for outlets upgrading to 3S/4S status.

On the new X70 model, the analysts said bookings have already surpassed 8,000 units even before the official launch, despite initial pessimism on cars that are made in China.

"We are further encouraged over recent news on upcoming models based on the Geely SX11 and VF11 which should provide the basis for new Proton models over the next 2-3 years," they said.

However, the analysts noted that Proton may face some challenges including the ability of the existing sales network to sell higher-end products as its sales teams are more used to selling affordable, entry-level segment cars.

"Also, the supply and demand gap after a very good reception on Proton X70 may end the hype on the model and lead to a bad customer experience," they added.