The recall of 15,911 of Proton Holdings Bhd’s Gen.2 and Satria Neo models made between 2004 and 2008 due to a clock spring malfunction is likely to cost the company an estimated RM5mil, according to analysts.
Based on reports, the clock spring connects switches and airbags to the radio, horn and cruise control.
OSK Research in its report yesterday said assuming that all the cars were affected, the repairs, which would involve replacement of the driver’s side airbags, would cost RM300 to RM400 per car.
“Assuming a worse-case scenario that would affect all 15,911 cars relating to deployment of the driver’s side airbags, this could see the total costs of the recall hovering between RM4mil and RM5mil, which is 1.4% of our financial year 2011 (net profit) forecast.”
MIDF Research in its report said it expected minimal impact to earnings as the number of cars affected was small and the parts affected not too costly.
“The recall affects 15,911 cars out of a total of 660,000 produced and sold by Proton over the four-year period. A quick check revealed that the replacement cost is relatively inexpensive (around RM300) and the work can be done fairly quickly in about one hour.
“The total cost for Proton is estimated at RM4.8mil,” it said.
OSK said the impact was likely to be minimal, given that the recall affected the company’s non-core models.
“On a positive note, however, the recall so far is limited to Proton’s non-core models although we do not rule out that this could affect its key models, such as the Saga, Exora and Persona, though we think chances of this would be quite minimal as Proton has stepped up its efforts to improve its quality given its improved rating,” it said.
OSK said it was making no changes to its forecast currently pending more clarity and guidance from Proton.
An analyst said the real impact would be on Proton’s brand image.
“Proton has always had issues over the quality of its vehicles, though the company has been doing a good job in recent years to help rectify this,” he said.
“News of its cars having defects will only refresh the memory of potential car buyers on the quality issue and this could steer them towards other makes that have a more sound track record. The uphill climb of assuring buyers about its quality just got harder.”
OSK also said the stock could face temporary negative reaction as the improved quality perception on Proton might be reassessed by potential buyers and also investors.
Proton’s shares closed down 4 sen to RM4.87 at 5pm yesterday on news of the recall.
HwangDBS Vickers Research in its report said there could be a knee-jerk reaction to the recall.
“This should drive Proton to be more diligent in sourcing its parts and improve the quality of the vehicle it produces,” it said.
Given that under 16,000 vehicles are affected against an annual sales volume of about 160,000 units, HwangDBS Vickers expects the impact on earnings on Proton’s financial year ending March 31, 2011 (FY11) to be minimal.
For FY10, Proton posted a net profit of RM239.09mil from a net loss of RM301.81mil a year earlier. Revenue increased to RM8.23bil from RM6.49bil previously.
Total sales volume increased 11% to 174,481 units from 156,845 in FY09.
AmResearch in its report said it did not think Proton would bear the full recall cost as part of the fault lied with the suppliers.
“While the recall may have a certain amount of impact on Proton’s sales volume, we note that Satria Neo and Gen.2 only account for 4% of Proton’s average monthly sales volume in 2010,” it said.
“Additionally, the quantum of recall is much smaller compared with the 34,000 units of the Savvy model that were recalled back in 2008 for wheel bearing problems.”
OSK also concurred that the recall of the Savvy in 2008 had a minimal impact on the company.
“Despite the concerns, earnings were not affected as Proton’s sales remained resilient given that the Savvy is a not a key contributor to total sales due to its small volume.
“Given the earnings potential from the newly-released Saga back then (January 2008) amid the negative news on the Savvy recall, Proton’s share price did not take any hit at all as the stock price ended in positive territory,” it said.
In a statement on Thursday, Proton group managing director Datuk Syed Zainal Abidin Syed Mohamed Tahir said although the number of vehicles affected was small, the safety of its customers was paramount.
The cost of replacing the clock spring at its authorised service centres would be borne by the company, Proton said in the statement , adding that it would be sending letters to affected customers alerting them to the defect.-thestar.
No comments:
Post a Comment