KUALA LUMPUR: DRB-Hicom Bhd probably stands a better chance than others to take over the driving seat of Proton Holdings Bhd if the diversified conglomerate is keen on the loss-making national carmaker.
If DRB-Hicom wins the bid, it would be second asset that the group acquires from Khazanah Nasional this year, after the acquisition of a 32.2% stake in Pos Malaysia Bhd. Khazanah has a 42.7% stake in Proton.
Former Prime Minister Tun Dr Mahathir Mohamad, the adviser to Proton, told Bernama and Bloomberg in a joint interview yesterday that DRB-Hicom “is likely to win the bid for Khazanah’s equity interest in Proton”.
According to Mahathir, Khazanah has approached several buyers for its stake in Proton, including the Naza Group of companies, Sime Darby Bhd and several other local companies. He said Sime Darby rejected the offer while Naza Group appeared to be interested as it had submitted a proposal.
“The buyer must have the capacity to finance the turnaround of Proton’s finances,” said Mahathir, who added that he is not backing any company and the final decision is in Khazanah’s hands.
It is understood that Khazanah is looking for a buyer who has the technology and expertise to improve Proton’s product quality for future survival. “DRB-Hicom is quite well-run.
They produce cars for Suzuki, Mercedes and Volkswagen. This company belongs to the Al-Bukhary Group, which has a lot of other businesses, including port operations. They seem to be able to do business,” the former prime minister was quoted as saying in the interview in Putrajaya yesterday.
Proton shares rose as much as 31 sen to RM4.30 before closing at RM4.23 for a 6% gain, giving the company a market capitalisation of RM2.32 billion.
However, the stock, which saw some 17 million shares traded, has declined 6% so far this year, underperforming the FBM KLCI’s 3% loss.
DRB-Hicom rose 3.3% or seven sen to RM2.19 during the day before it closed unchanged at RM2.12 yesterday. The stock which saw some 5.3 million shares traded, has gained 9% this year.
Khazanah Nasional Bhd had not responded to email enquiries by The Edge Financial Daily at press time, while Proton and DRB-Hicom officials declined to comment when contacted by telephone.
DRB-Hicom has previously denied knowledge of a bid for Proton and of plans to sell a stake in Proton to Volkswagen.
The likelihood of Khazanah selling its stake in Proton and DRB-Hicom’s interest in the carmaker was first highlighted by The Edge weekly just over a week ago.
It is learnt that DRB-Hicom might be paying around RM1.38 billion or RM5.90 per share for the 42.7% stake held by Khazanah in the national carmaker. At RM5.90, the offer price is about a 39% premium to yesterday’s closing price of RM4.23.
Mahathir, who had been instrumental in the development and progress of Proton since its first car was rolled out in 1985, said DRB-Hicom was deemed a preferred candidate due to its strong financial and management capabilities.
Over the weekend, Mahathir was quoted as saying in Langkawi that Khazanah is selling its equity interest in the national car company because it is not putting more money in Proton, which requires financial resources for research and development to spur its new product development.
The former prime minister also expressed concern over whether DRB-Hicom has the money to finance the acquisition as the purchaser would be paying a premium for the Proton shares. DRB-Hicom’s largest shareholder is Etika Strategi Sdn Bhd, which in turn is the private vehicle of tycoon Tan Sri Syed Mokhtar Al-Bukhary.
Proton’s existing management is also said to have expressed interest in a management buyout. The proposal is spearheaded by chairman Datuk Seri Mohd Nadzmi Mohd Salleh and CEO Datuk Seri Syed Zainal Abidin Syed Mohamad Tahir.
Proton’s earnings have not fared well due to falling sales and higher operating expenses. Net profit in the first half ended Sept 30, 2011 fell 87% to RM20.11 million from RM150.6 million a year earlier, while revenue declined 0.7% to RM4.5 billion from RM4.53 billion, despite the rollout of several new models.
As at Sept 30, Proton had cash of RM1.31 billion against debts of RM960 million, translating into net cash of RM350 million for the company. Its net assets per share stood at RM9.81.
Assuming DRB-Hicom acquires the entire 42.7% stake in Proton, the buyer would need to do a mandatory general offer to minority shareholders for the remaining stake in the national carmaker.
In a note yesterday, TA Securities Holdings Bhd analyst Tan Kam Meng said while the rumoured price is RM6 to RM7 a share for Proton, a huge premium to the current market price, the acquisition price range is still below Khazanah’s cost of investment of over RM8 a share in Proton.
“The key risk is whether DRB-Hicom’s minority shareholders would approve a deal. Shareholders would naturally question whether it is worth it to acquire Proton at a huge premium given the fact that the national carmaker is losing market share and will require substantial funding to keep it competitive,” said Tan who has a fair value of RM5.91 for Proton shares with a “buy” call.
The analyst said DRB-Hicom has the means to raise the funds needed for the acquisition as the group’s gearing level is low. As at Sept 30, 2011, the firm’s total borrowings and net gearing stood at RM2.1 billion and 0.14 times respectively, according to Tan.
Assuming the acquisition is entirely done via a share swap, Tan said it would lead to a significant dilution of up to 94% to DRB-Hicom’s current shareholders. “Hence, we think any deal would likely comprise a combination of DRB-Hicom shares and cash,” he said.
The conglomerate had cash and cash equivalents of RM1.83 billion, excluding banking assets, as at Sept 30, according to its latest reported balance sheet.
Affin Investment Bank analyst Chong Lee Len said DRB-Hicom’s move to acquire Proton would instantly increase the acquirer’s installed automotive plant capacity.
However, Chong noted that DRB-Hicom can easily expand its capacity on its own without having to buy Proton.
“Thus, we see less synergy from the potential acquisition of DRB-Hicom vis-à-vis the potential entry of a foreign automaker.
“Fundamentally, we continue to see a competitive domestic landscape and stagnant market share for Proton. The export market is also expected to remain a stumbling block as a depressed Europe and flattish US market will force global auto players to focus very much on Asia, the growth driver,” Chong wrote in a note yesterday.
According to the analyst, funding will remain a “stumbling block” for DRB-Hicom as it would need an estimated RM2.6 billion to purchase the entire stake in Proton, assuming the buyer pays RM4.79 per Proton share, or a 20% premium to the stock’s closing price of RM3.99 last Friday.
If DRB-Hicom wins the bid, it would be second asset that the group acquires from Khazanah Nasional this year, after the acquisition of a 32.2% stake in Pos Malaysia Bhd. Khazanah has a 42.7% stake in Proton.
Former Prime Minister Tun Dr Mahathir Mohamad, the adviser to Proton, told Bernama and Bloomberg in a joint interview yesterday that DRB-Hicom “is likely to win the bid for Khazanah’s equity interest in Proton”.
According to Mahathir, Khazanah has approached several buyers for its stake in Proton, including the Naza Group of companies, Sime Darby Bhd and several other local companies. He said Sime Darby rejected the offer while Naza Group appeared to be interested as it had submitted a proposal.
“The buyer must have the capacity to finance the turnaround of Proton’s finances,” said Mahathir, who added that he is not backing any company and the final decision is in Khazanah’s hands.
Mahathir (right) and Tan Sri Syed Mokhtar Al Bukhary in a file photo of signing ceremony GIIG and Chalco on Feb 9, 2010. Mahathir, and adviser to Proton, told Bernama and Bloomberg in a joint interview yesterday that DRB-Hicom, controlled by the latter, 'is likely to win the bid for Khazanah's equity interest in Proton'.
It is understood that Khazanah is looking for a buyer who has the technology and expertise to improve Proton’s product quality for future survival. “DRB-Hicom is quite well-run.
They produce cars for Suzuki, Mercedes and Volkswagen. This company belongs to the Al-Bukhary Group, which has a lot of other businesses, including port operations. They seem to be able to do business,” the former prime minister was quoted as saying in the interview in Putrajaya yesterday.
Proton shares rose as much as 31 sen to RM4.30 before closing at RM4.23 for a 6% gain, giving the company a market capitalisation of RM2.32 billion.
However, the stock, which saw some 17 million shares traded, has declined 6% so far this year, underperforming the FBM KLCI’s 3% loss.
DRB-Hicom rose 3.3% or seven sen to RM2.19 during the day before it closed unchanged at RM2.12 yesterday. The stock which saw some 5.3 million shares traded, has gained 9% this year.
Khazanah Nasional Bhd had not responded to email enquiries by The Edge Financial Daily at press time, while Proton and DRB-Hicom officials declined to comment when contacted by telephone.
DRB-Hicom has previously denied knowledge of a bid for Proton and of plans to sell a stake in Proton to Volkswagen.
The likelihood of Khazanah selling its stake in Proton and DRB-Hicom’s interest in the carmaker was first highlighted by The Edge weekly just over a week ago.
It is learnt that DRB-Hicom might be paying around RM1.38 billion or RM5.90 per share for the 42.7% stake held by Khazanah in the national carmaker. At RM5.90, the offer price is about a 39% premium to yesterday’s closing price of RM4.23.
Mahathir, who had been instrumental in the development and progress of Proton since its first car was rolled out in 1985, said DRB-Hicom was deemed a preferred candidate due to its strong financial and management capabilities.
Over the weekend, Mahathir was quoted as saying in Langkawi that Khazanah is selling its equity interest in the national car company because it is not putting more money in Proton, which requires financial resources for research and development to spur its new product development.
The former prime minister also expressed concern over whether DRB-Hicom has the money to finance the acquisition as the purchaser would be paying a premium for the Proton shares. DRB-Hicom’s largest shareholder is Etika Strategi Sdn Bhd, which in turn is the private vehicle of tycoon Tan Sri Syed Mokhtar Al-Bukhary.
Proton’s existing management is also said to have expressed interest in a management buyout. The proposal is spearheaded by chairman Datuk Seri Mohd Nadzmi Mohd Salleh and CEO Datuk Seri Syed Zainal Abidin Syed Mohamad Tahir.
Proton’s earnings have not fared well due to falling sales and higher operating expenses. Net profit in the first half ended Sept 30, 2011 fell 87% to RM20.11 million from RM150.6 million a year earlier, while revenue declined 0.7% to RM4.5 billion from RM4.53 billion, despite the rollout of several new models.
As at Sept 30, Proton had cash of RM1.31 billion against debts of RM960 million, translating into net cash of RM350 million for the company. Its net assets per share stood at RM9.81.
Assuming DRB-Hicom acquires the entire 42.7% stake in Proton, the buyer would need to do a mandatory general offer to minority shareholders for the remaining stake in the national carmaker.
In a note yesterday, TA Securities Holdings Bhd analyst Tan Kam Meng said while the rumoured price is RM6 to RM7 a share for Proton, a huge premium to the current market price, the acquisition price range is still below Khazanah’s cost of investment of over RM8 a share in Proton.
“The key risk is whether DRB-Hicom’s minority shareholders would approve a deal. Shareholders would naturally question whether it is worth it to acquire Proton at a huge premium given the fact that the national carmaker is losing market share and will require substantial funding to keep it competitive,” said Tan who has a fair value of RM5.91 for Proton shares with a “buy” call.
The analyst said DRB-Hicom has the means to raise the funds needed for the acquisition as the group’s gearing level is low. As at Sept 30, 2011, the firm’s total borrowings and net gearing stood at RM2.1 billion and 0.14 times respectively, according to Tan.
Assuming the acquisition is entirely done via a share swap, Tan said it would lead to a significant dilution of up to 94% to DRB-Hicom’s current shareholders. “Hence, we think any deal would likely comprise a combination of DRB-Hicom shares and cash,” he said.
The conglomerate had cash and cash equivalents of RM1.83 billion, excluding banking assets, as at Sept 30, according to its latest reported balance sheet.
Affin Investment Bank analyst Chong Lee Len said DRB-Hicom’s move to acquire Proton would instantly increase the acquirer’s installed automotive plant capacity.
However, Chong noted that DRB-Hicom can easily expand its capacity on its own without having to buy Proton.
“Thus, we see less synergy from the potential acquisition of DRB-Hicom vis-à-vis the potential entry of a foreign automaker.
“Fundamentally, we continue to see a competitive domestic landscape and stagnant market share for Proton. The export market is also expected to remain a stumbling block as a depressed Europe and flattish US market will force global auto players to focus very much on Asia, the growth driver,” Chong wrote in a note yesterday.
According to the analyst, funding will remain a “stumbling block” for DRB-Hicom as it would need an estimated RM2.6 billion to purchase the entire stake in Proton, assuming the buyer pays RM4.79 per Proton share, or a 20% premium to the stock’s closing price of RM3.99 last Friday.
