We visited DRB-Hicom (DRB) PROTON manufacturing plant in Tanjung Malim and remain positive with its growth strategy toward achieving sales target of 310k/500k units by 2030/2035, of which 50% to be new energy vehicle (NEV) and export market. The ambitious target will be driven by its partnership with Geely and the development of the Automotive Hi-Tech Valley (AHTV) project which will transform Tanjung Malim into a global automotive hub for NEV. However, we keep our estimates unchanged for now as we are not expecting any near-term impact arising from this project. We continue to like DRB’s growth prospect and retain our Outperform call with unchanged sum-of-parts (SOP) based TP of RM2.10.

• AHTV is aimed at being the next generation automotive hub (e.g., Toyota City in Japan and Volkswagen City in Germany), which spans over 4,000 acres surrounding the PROTON Tanjung Malim plant. It will cover extensive automotive and mobility solutions across the value chain, from technology research and development centre, to manufacturing cluster as well as supporting services and associated ecosystem including logistics, research university, training and learning institutions within a smart city. PROTON set to fully shift its Shah Alam operation to Tanjung Malim by 2026/27. Approximately 50 vendors are expected to move into the new facilities in AHTV within the next few years. The AHTV is expected to attract some RM32bn worth of investments over the next 10 years and expand the capability of local vendors towards specializing in high technology manufacturing.

• PROTON target to double its sales to 310k units by 2030 from 141k units in 2022 and 104k units in YTD Aug 23. For longer term, PROTON has a sales target of 500k units by 2035, of which 50% to be NEV and for export market. Export market is crucial for PROTON to achieve the economies of scale. PROTON’s current production capacity is 330k units per annum, comprising 250k units for Tanjung Malim plant and 80k units for Shah Alam plant. PROTON has invested RM4bn during 2018-2023 period and is planning to invest RM6bn between 2024-2030 to achieve the ambitious sales targets.

• Geely owns and manages a number of brands including Geely Auto, Lynk & Co, ZEEKR, Geometry, Volvo Cars, Polestar, LEVC, Radar Lotus, Smart and Livian. Smart is a 50:50 JV initiative between Geely and Daimler to transform the brand into a premium EV to penetrate the global market.

• PROTON Electric Vehicle (EV) roadmap for electrification will be in phases, with mild hybrid (MHEV) tech leading the way in, alongside the smart #1 and followed by plug-in hybrid electric vehicle (PHEV) and transitioning into battery electric vehicle (BEV). To recap, PROTON was appointed official distributor of Smart vehicles for Malaysia and Thailand and target to launch its first EV (Smart #1) in 4Q23. Following that, PROTON has also signed a memorandum of agreement (MoA) with Smart Automobile to study the feasibility to local assemble Smart vehicle at PROTON’s Tanjung Malim plant. As part of its electrification strategy, PROTON aims to localise key EV components and develop its own mass market EV models by capitalizing on Geely’s EV expertise and ecosystem.

• PROTON Tg Malim. We were given the opportunity to visit PROTON’s new facilities, (i) TGDI engine production plant and (ii) large-size stamping parts production. The TGDI engine production plant produces GEP3 engine series comprising 1.5T and 1.5TD engines for X model series (X50, X70 and X90). Its new large-size stamping plant is the largest in Malaysia, which consist of five stamping machines with stamping force ranging from 1,000 to 2,500 tonnes. Investment in PROTON Tg Malim is being intensified since 2018 to improve productivity, quality and cost efficiency.

Source: PublicInvest Research - 17 Oct 2023