Hwang DBS Vickers Research: No reason for Perodua, Proton merger

Hwang DBS Vickers Research said that two months after calling for a consolidation of the auto industry, Proton is now not interested in a merger.

The research house said on Monday, Sept 20 it was relieved that Proton is no longer pushing for a merger with Perodua, which it called an industry consolidation.

Its adviser Tun Dr Mahathir Mohamad was quoted saying on Friday, Sept 16 that financially, Proton is quite okay now. Instead, Proton would opt to form a "simple cooperation" with other companies once it completes its ongoing restructuring process.

“In our earlier comment (July 2010), we said that there is no reason for Perodua to merge with Proton because their platforms are different, which can result in an operational mess, and hence, operational synergies that Proton is arguing for may be hard to realise.

“Also, Proton is the one who has utilisation inefficiencies, not Perodua, making a merger of the two a one-sided deal in favour of Proton,” said the research house.

Hwang DBS Vickers Research said it agreed with Dr Mahathir that Proton is financially stable and it holds the view that it had turned the corner, with projected 3-year CAGR (CY10F-CY12F) of 40% on the back of good sales, better economies of scale and improving efficiencies.

“Hence, we retain our Buy call on Proton with a TP of RM6.60 (0.7x CY11F NTA). We also have Buy ratings on MBM Resources with a TP of RM4.80 (6x FY11F PE) and UMW with a TP of RM7.40 (sum-of-parts),” it said.