What potential suitors can offer

By EUGENE MAHALINGAM

WHILE DRB-HICOM Bhd has been tipped to be the best candidate to purchase the Government's stake in Proton Holdings Bhd, it would still be interesting to know what the other contenders would have brought to the table.

According to several news reports, Khazanah Nasional Bhd, the Government's investment arm that holds a 42.7% stake in Proton, had been soliciting several buyers for its stake in Proton, including the Naza Group of companies, Sime Darby Bhd and several other local companies.

Former Prime Minister and Proton adviser Tun Dr Mahathir Mohamad recently revealed that Sime Darby had rejected the offer, while the Naza Group had expressed interests and even submitted a proposal.

And due to their prominent presence in the automotive sector, industry observers and analysts also feel that companies such as UMW Holdings Bhd and even Tan Chong Holdings Bhd would make ideal candidates.

Or will they?

Naza Group of Companies

The Naza Group, the country's largest privately held automotive group, is said to have expressed the most interest (other than DRB-HICOM) to take over Khazanah's stake in Proton.

According to a local report, the group had made a closed-door presentation to Khazanah earlier this week to buy its stake in Proton, at a slightly higher bid price than the rumoured RM6 to RM7 per share.

An industry observer pointed out that the Naza Group had a long and established history in the automotive business.

“Naza has been in the automotive business since the mid-70s and has been one of the more successful private companies with a proven track record operating in the competitive automotive business.

“Furthermore, Naza is a bumiputra-owned company with all its automotive brands achieving positive growth.”

The Naza Group imports a number of luxury automobiles such as Ferrari, Peugeot and Brabus. It also has tie-ups with South Korea's Kia Motors, French carmaker PSA Peugeot Citroen and General Motors (GM) via Chevrolet.

OSK Research in a recent report says it sees little synergy for a Naza-GM-Proton tie-up as GM already has a state-of-the-art facility in Thailand.

“Furthermore, any acquisition by the Naza Group could hurt Proton's potential collaboration with Japan's Mitsubishi Motors Corp (MMC) as the Naza Group has South Korea's Kia Motors as a strategic partner. This is because Japanese and Korean auto makers compete against each other.”

Proton is presently in talks with MMC on strategic collaborations regarding joint production of engines in Malaysia and consignment production of Mitsubishi vehicles at the Proton facility in Tanjung Malim, Perak.

OSK Research also noted that as Naza is bidding on its own and without a foreign partner, funding could be an issue.

“We think that funding could pose a problem for the group as Naza's property development business is expanding in a big way, although the fact that Naza is a private company presents a window for its eventual listing to raise funds.”

Naza Automotive Manufacturing Sdn Bhd, the group's production facility in Gurun, Kedah, manufactures Peugeot and Kia models and has rolled out more than 150,000 vehicles so far.

According to reports, the facility is undergoing a RM714mil upgrading and expansion exercise over a six-year period, which began last year. Under this exercise, Naza will be investing on plant expansion, new model introductions and research and development.

UMW Holdings Bhd

Reports claim that UMW Holdings had made a presentation to Khazanah for a bid on Proton. When contacted, an official told StarBizweek that the company “has not received any such offer nor approached by Khazanah regarding Proton.”

UMW Holding's unit, UMW Toyota Motor Sdn Bhd, is the appointed distributor of Toyota vehicles locally.

UMW Holdings, which is majority-controlled by the Government's Permodalan Nasional Bhd (PNB) and the Employees Provident Fund, is also the single largest shareholder of Perusahaan Otomobil Kedua Sdn Bhd, the manufacturer of Malaysia's second national car.

The group is also involved in the oil and gas sector, the distribution of heavy machinery and the manufacture of autoparts.

OSK Research says it was surprised by the news of UMW Holdings approaching Khazanah.

“Toyota, the world's biggest automaker and UMW Holdings' key strategic partner and shareholder, is not known to have expanded its market share by acquiring other auto makers but has only done so with regard to extending its components business and technologies.

“As such, any demonstration of interest on the part of UMW Holdings may only be at the PNB level. As such, a move would certainly be met with opposition from its Japan-based principal.”

One analyst says the group is likely to utilise its funds to source for automotive parts as a result of the discrepancies in production caused by the recent floods in Thailand.

“The company has said that it expects a temporary lower-than-normal inventory levels for the months of November and December 2011 due to the supply disruption and may need to source for substitute parts from affiliates in other countries.”

Sime Darby Motors

News reports claim that Sime Darby Motors, a unit of palm-oil conglomerate Sime Darby Bhd, was also linked to purchase Khazanah's stake in Proton. However, subsequent reports, citing Mahathir, revealed that Sime Darby had rejected the offer.

OSK Research analyst Ahmad Maghfur Usman says he does not see any potential for a tie-up between Proton and Sime Darby Motors.

“Sime Darby mostly does assemblies especially for Hyundai vehicles. They are on the verge of a turnaround and don't want to risk anything that's uncertain at the moment,” he says.

Sime Darby Motors imports and distributes BMW, MINI and Rolls-Royce, Ford, Land Rover, Peugeot, Hyundai, Porsche, Alfa Romeo, SsangYong, Suzuki, Mitsubishi, Chrysler, Jeep, Dodge and McLaren passenger vehicles in certain markets in the Asia Pacific region.

In the commercial vehicles sector, we import and distribute Mack, Hino, Renault, Nissan UD Trucks, Smith Electric Vehicles and Hyundai brands.

Sime Darby Motors also operates the Inokom vehicle assembly plant in Kulim, Kedah and holds the exclusive franchise for the Hertz car rental business in Malaysia.

According to reports, the company is expecting at least a 23% year-on-year jump in vehicle sales or more than 70,000 units sold in the eight countries it operates in for the current financial year ended June 30, with its China operations contributing between 25,000 to 27,000 units during the period.

The BMW marque accounted for the bulk of vehicle sales for the company's operations in China, Hong Kong and Macau. A total of 24,487 BMW cars were sold in China, Hong Kong and Macau during FY11 (a 66% year-on-year jump compared with 14,785 BMW cars sold during FY10).

It also sold 996 units of Rolls-Royce, Lamborghini, Jaguar and Land Rover premium and luxury cars in China, Hong Kong and Macau during financial year 2011.

Another 1,794 units of Mitsubishi, Suzuki and Smith Electric vehicles were sold by Sime Darby Motors in Hong Kong and Macau during its 2011 financial year.

Sime Darby Motors ventured into the China market in 1994, where it retails BMW, MINI, Rolls-Royce, Lamborghini, Jaguar and Land Rover marques. It has twelve 4S (sales, service, spare parts and aftersales) outlets, four after-sales service centres and six showrooms for the six car marques it represents in China.

Its new BMW 4S centre in Chengdu, built at a cost of 120 million yuan (RM56mil), is the largest of its kind in China, with a floor area of 26,000 sq m.

Tan Chong Motor

An unlikely candidate to acquire Proton, but can probably be considered one of the more deserving suitors out there should there be an open bid for Proton.

Interestingly, the national carmaker had in March of this year signed a memorandum of understanding with Nissan Motor Co Ltd to explore possibilities of incorporating select Nissan technology and manufacturing expertise into Proton cars upon evaluating the results of a three-month feasibility study.

There was speculation that the collaboration could extend to the re-badging of the Nissan Fuga as the Perdana replacement model that is intended for use by senior government officials. However, the deal between Proton and Nissan has since ended.

Could Tan Chong pick up where its Nissan principal left off?

While a collaboration between Proton and Tan Chong is certainly a possibility, analysts and industry observers believe that the latter would never buy a stake in the national carmaker.

“Tan Chong is comfortable with their business model at the moment. They are growing their presence in Indo-China and that is their focus at the moment,” says OSK's Ahmad Maghfur.

One industry observer says Khazanah would never divest its stake in Proton to a non Government-linked company.

Tan Chong is best known as the franchise holder and exclusive distributor of Nissan passenger and light commercial vehicles and Renault vehicles in Malaysia. It operates two assembly plants in Segambut and Serendah, which have production capacities of approximately 17,280 units and 14,400 units respectively a year on a single-shift basis.

It is also the franchise holder and exclusive distributor for trucks and buses under the brand of UD Trucks and has established itself as one of the leading commercial vehicle distributors in Malaysia.

From 2005, the group expanded its automotive business operations overseas with the assembly of bus chassis and sale of buses in Vietnam and provision of automotive workshop services in Cambodia and Thailand.

In December 2009, the group obtained an investment certificate to undertake the manufacturing, assembly and sale of buses, trucks and passenger cars, provision of after-sales services and sale of spare parts in Vietnam.

For this purpose, the group has leased a piece of industrial land in Danang City, Vietnam to implement this new investment project in Vietnam. In March 2010, it entered into distribution agreements with Nissan Motor Co Ltd in respect of the sole and exclusive rights to distribute Nissan brand completely built-up vehicles in Cambodia and Laos.

In October, the group acquired a 74% charter capital in Nissan Vietnam Co. Ltd, which is principally involved in the importation and distribution of Nissan vehicles in Vietnam.

In December 2010, Tan Chong established a wholly-owned subsidiary named Tan Chong Motorcycles (Laos) Co Ltd in Savan-Seno Special Economic Zone in Lao PDR to undertake the assembly, sale and distribution of motorcycles.