By Am Research
11 June 2012
• According to a report in the Financial Daily this morning, sales numbers for the Proton
Preve has climbed strongly since May. As of June 6th, it is said that bookings for the Preve (launched April 16th) have exceeded 10,000 units, which is a sharp increase over a reported 4,000 bookings for the model at the beginning of May.
• Sales during the first three months following the launch of a new model are usually
strongest. However it is said that Preve “disappointed’ with sales of only 2,699 units in May
vs. management’s target of 4,000 units/month.
• To be fair, we understand there were production issues – technical problems related to lines
which caused production slowdown, though this has been rectified recently. We think this is
one of the key factors causing low booking rates – as sales or incentives were managed to
match actual production capability and avoid excessively long waiting periods which could
deter buyers from finalising purchases. Underpinning our opinion, the article also indicated
that Preve buyers need to wait for up to two months despite the low booking rates.
• The improving bookings for the Preve are a positive and are a strong earnings catalyst for
Hirotako, which is a key supplier of safety systems (seatbelts and airbags) for Proton.
Hirotako is estimated to contribute 44% to MBM’s core operating profit (FY12F).
• Our projections currently model in very conservative Preve sales of 23,600 units for 2012, or
an average monthly sales of 2,950 units (Preve was launched mid April). The strengthening
bookings for the Preve suggests upside to our forecasts. We also gather that Proton’s
overall sales improved to 14,057 units in May (+40% MoM, flat YoY).
• On top of this, the Preve generates higher revenue per car set for Hirotako –at an average
RM1000-1100/car set. Hirotako on average generates revenue per car set of just over
RM900 for supplies to Proton currently (ex-Preve), on our estimates.
• We re-affirm our BUY rating on MBM at unchanged SOP derived fair value of RM3.60/share.
Our valuation implies a conservative 9x FY12F earnings, at a 10% discount to sector
average PE of 10x. Key catalysts in the near-term: (1) Newsflows on expansion into vehicle
assembly within the next 6 months; (2) Stronger than expected performance from Hirotako
given improving Preve sales; (3) Undervalued stake in Perodua – implied valuation of 7x
FY12F earnings.
BUY
Price: RM3.08
Fair Value: RM3.60
[Source]
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