Thursday 5 January 2012

Proton advances on chairman bid, but strategic partner crucial

KUALA LUMPUR (Jan 5): Securities of PROTON HOLDINGS BHD [] rose on Thursday, spurred by the latest corporate development where its chairman Datuk Mohd Nadzmi Mohd Salleh confirmed he had put in a bid for Khazanah Nasional's 42.7% stake.

However, CIMB Research said a strategic partnership with a global original equipment manufacturer (OEM) involving TECHNOLOGY [] transfer was needed for Proton's exports aspirations and its long-term sustainability as an auto manufacturer.

At 2.31pm, Proton was up 13 sen to RM15.01 while its call warrants also advanced in heavy trade. Proton-CL rose seven sen to 22 sen, Proton-CG five sen to 49.5 sen and Proton-CH 4.5 sen to 45 sen.

The FBM KLCI rose 2.88 points to 1,507.10. Turnover was 771.48 million shares done valued at RM599.23 million. There were 308 gainers, 311 losers and 339 counters unchanged.

A news report quoted Nadzmi as saying that privatisation was the way to go for Proton, which would enable him to restructure the whole group to turn it around.

"I know the business well, and Proton is close to my heart. There is a potential in Proton and that is why I dare to make a bid and the offer runs into billions," he was quoted saying in the report.

Nadzmi had also said if "done right", Proton's profit could easily be doubled or tripled without incurring any additional investment cost.

"It is all about how you juggle your assets. This could be done by increasing the utilisation rate of Proton's assets, cost reduction and also increasing Proton's exports. These steps could easily add a further RM500 million to RM600 million to Proton's bottom line," he was quoted saying.

CIMB Research said news of a potential management buyout is not entirely a surprise as Proton's management has, in the past, indicated such intention to do so.

“Datuk Nadzmi's belief in the privatisation for Proton and his indication that his bid runs into billions should be good news for minority shareholders banking on Proton's general offer,” it said.

The research house said his comment on an offer for the NTA price of Proton being too high reaffirmed its belief that a balance has to be struck as Khazanah would unlikely to settle for a price much lower than Proton's NTA but an entry price that is too high would give the acquirer less ammunition in its overhaul of the company.

“While we concur that one way to revive Proton's profitability would be to increase its plants' utilisation rate needed for the business to achieve economies of scale, we think a strategic partnership with a global OEM involving technology transfer is needed for Proton's exports aspirations and its long-term sustainability as an auto manufacturer,” it said.



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