OSK Research Sdn Bhd has downgraded its call on Proton Holdings to "sell" with a fair value of RM2.00.
It said the national car manufacturer's weak results were below its forecasts with earnings being weighed down by massive expenses from its UK subsidiary, Lotus.
"The Q1 profit accounted for only two per cent of our full-year forecast of RM213.6 million despite being a stark improvement from the previous quarter on lower expenses incurred by its sports vehicle subsidiary," it said in a research note today.
The research firm also said Proton's topline was weak on lower vehicle sales with most buyers deferring their purchasing decisions pending the launch of the new Myvi.
"The topline weakness is also driven by lower export sales of its completely build units and smaller contribution from Lotus, which saw its sales decline year-on-year," it said.
OSK said this is also due to the possibility for Proton to incur RM2.3 billion in its turnaround of Lotus over a five-year period.
"We estimate the amount incurred so far at RM2 million and anticipate the bulk of the expenses to be incurred over the next two years," it said.
Bearing this in mind, OSK said it has also toned down the earnings forecast for Proton for FY12 from RM213.6 million to RM60.8 million.
For FY13 and FY14, the firm said it expects Proton to register earnings of only RM108.3 million and RM174.5 million respectively on the back of higher Proton vehicles sales amidst the upcoming launch of Proton Persona replacement and Lotus model line-up.