Price the key in race for Proton

by **hlk** Sat 17 Dec 2011, 10:29

Analysts are reluctant to put all their money on any one of the potential suitors, most of them have narrowed down their pick to two parties: DRB-HICOM and UMW shareholders.

KUALA LUMPUR: Over the past few weeks, the market has been keeping a close watch on turns of events at Proton Holdings Bhd.

What initially appeared to be a straightforward race to buy Khazanah Nasional Bhd's 42.7 per cent stake in Proton has now become a four-horse race, with any of four parties - DRB-HICOM Bhd, Naza Group, Sime Darby Bhd and shareholders linked to UMW Holdings Bhd - could end up becoming new major owner of the national carmaker.

A look at the potential suitors shows that all four can do good with Proton's business and take the company to the next level.

DRB-HICOM, controlled by reclusive tycoon Tan Sri Syed Mokhtar Al Bukhary, is a conglomerate that has businesses in the automotive, financial, property, hospitality and other industries.

For the year ended March 31 2011, it posted a net profit of RM472.47 million (a marginal improvement), while revenue rose by seven per cent to RM6.8 billion.

"DRB-HICOM is able to turn around Proton. With the backing of Syed Mokhtar, funding for future capital needs would not be an issue," said an analyst from a local brokerage.

Naza Group, which started as a used and re-conditioned car trader before becoming one of the country's top carmakers, is another force to reckoned with.

The group, via its units, currently assembles various Kia and Peugeot models.

"This is a tricky one. It is hard to predict how their chances would be. Being a privately-owned company, not many people would really know what is their true financial strength and how much it would offer to buy Khazanah's stake," said the analyst.

Sime Darby, the second most valuable company in the country, also seems to be a good fit for Proton.

"Sime Darby's auto division is run well. The company has been growing its automotive business significantly and consistently over the past few years, both top and bottom lines, at a time when some carmakers couldn't," another analyst noted.

Then comes shareholders linked to UMW Holdings.

Sources disclosed to Business Times on Thursday that the group appeared to be favoured by Khazanah to buy its stake.

UMW is majority controlled by Permodalan Nasional Bhd and the Employees Provident Fund.

If indeed Khazanah should announce that UMW Holdings is its choice, persistent rumours about a merger of Proton and Perodua could happen after all.

"This is interesting as the deal may mean a potential merger of two national carmakers. There could be a lot of synergies that both carmakers can create with a merger," said the analyst.

UMW Holdings has denied that it had submitted a proposal to Khazanah to acquire the stake.

Although analysts are reluctant to put all their money on any one of the potential suitors, most of them have narrowed down their pick to two parties: DRB-HICOM and UMW shareholders.

Overall, they agree that all potential suitors have the strengths to turn Proton around and grow it to the next level.

However, the key now is the pricing and whether there will be cannibalisation between the potential buyer's business and Proton's.