Shares in troubled national carmaker Proton plunged 6.78 percent in morning trade today after the automaker sank into the red in the three months to June.

Proton, whose sales have declined due to competition from imports, posted a RM12.35 million net loss in the first quarter of its financial year, from a profit of RM166.47 million a year ago.

At the close of the morning session, Proton was down 0.60 sen to RM8.25 in the first day of trading after it released the results late Tuesday. Financial markets were closed yesterday due to a public holiday.

Analysts said Proton's quarterly results were well below market expectations.

"We flagged that year-to-June-2006 results would not meet consensus expectations but this is beyond even our worst fears," brokerage firm ECM Libra said in a research note.

Proton blamed its poor performance on lower sales, rising component costs and higher allowances for doubtful debts, which ECM said was an indication of structural problems.

"We believe this is reflective of a deep problem," ECM said, adding that a check on operating cash flow showed it to be negative RM254 million compared to positive RM174 million last year.

"We believe the pressure on cash flow is coming from working capital," it said.

ECM said that while there had not been much capital expenditure during the first quarter, inventories were building up while receivables were not being collected.

"Sales at Proton may therefore be artificially high if stock is being offloaded to distribution arm Proton Edar, but not really being sold as receivables are being written off," it said.

The firm said the first-quarter results confirmed Proton is losing money on all new models launched recently in an attempt to claw back market share.

Possible losses of RM1.2 billion

If the structural problems continued, Proton would be down by another RM1.2 billion by the end of the financial year, said ECM, adding that this would likely affect negotiations with German carmaker Volkswagen over a reported partnership deal.

"VW will be sure to take this into consideration in its valuations and due diligence on Proton," it said.

Proton used to sell six out of 10 new cars in Malaysia but sales have been tumbling for the past few years as it feels the bite of growing foreign competition as the government whittles away protection.

DAP Secretary General Lim Guan Eng today called for the government to fully explain the red ink on Proton's balance sheet.

"Such an explanation is necessary to avoid Proton's net losses from adversely affecting the performance of the Kuala Lumpur Stock Exchange," he said in a statement.