KUALA LUMPUR: National carmaker Proton Holdings Bhd, Malaysia’s most recognisable international brand, will no longer come under public scrutiny when it is taken off Bursa Malaysia’s rolls this week.
DRB-Hicom Bhd, a diversified conglomerate with extensive interest in the auto sector, is putting the final touches to its privatisation plan for the Main Market-listed car company. Proton shares will cease to be traded on Wednesday, company executives said.
Proton, which remains a major source of national pride, went public in 1992 and its delisting will remove the company from public scrutiny.
Bursa Malaysia said that DRB-Hicom has already received 99.08% acceptance for its general offer for Proton, which priced each share in the car company at RM5.50 a piece. The takeover values the company at roughly RM3 billion, a premium over the book value of the company’s property, plant and equipment, which stand at around RM2.59 billion.
Proton’s privatisation by DRB-Hicom will create the country’s single largest automotive group, dwarfing the second national carmaker, Perusahaan Otomobil Kedua Sdn Bhd (Perodua).
But steering the national car maker, which has seen its dominance in the local market sharply undercut by competition from foreign brands, isn’t going to be easy, auto industry analysts said.
A key challenge will be rationalising the group’s production capacity, which is underutilised. Combined, the two automakers have three separate assembly and manufacturing facilities. Proton owns a Shah Alam factory and newer facility in Tanjung Malim, while DRB-Hicom has a plant in Pekan.
Auto industry analysts believe that DRB-Hicom should move all of Proton’s manufacturing and assembly operations to the Tanjung Malim plant, which has an annual production capacity of 150,000 units. The Perak-based plant, which can be expanded to 250,000 units, only produced 57,700 units last year.
Relocation plans in the past have stumbled because of opposition from Proton’s powerful network of parts suppliers, which are located around the Shah Alam facility. But that could change with DRB-Hicom’s stranglehold over the company. With total control of Proton and access to its own supply chain of vendors, DRB-Hicom’s management may have enough leverage to relocate the plant, auto industry executives said.
Another key challenge for Proton’s new owners will be loss-making Lotus Group. Lotus Group’s operating losses for the nine months ended Dec 31, 2011 grew to RM166.6 million from RM102.4 million a year ago. DRB-Hicom has said that it has no intention of selling Lotus but the company will be deploying key executives to the UK-based sports car manufacturer in the coming weeks.
DRB-Hicom also has its own problems. The conglomerate has a weak cash position.
DRB-Hicom was net cash negative as at Dec 31, 2011 with a deficit of RM483 million. The group had only RM2.19 billion in cash against RM2.67 billion in short and long-term borrowings. DRB-Hicom has recorded a net cash outflow from operating activities of RM1.8 billion as for the nine months ended Dec 31, 2011. Now, it will be burdened by the funding costs of acquiring loss-making Proton.
Proton on the other hand is only slightly net cash positive as at Dec 31, 2011 with RM35.2 million net cash. Proton’s net operating cash flow for the nine months ended Dec 31, 2011 was RM217.4 million despite making a net loss of RM68 million.
For 4Q ended Dec 31, 2011, Proton made a net loss of RM88.2 million, on the back of revenue of RM1.43 billion.
When it didn’t make a loss, Proton earnings over the past five years have been unimpressive despite a steadily increasing multi-billion dollar top line.
Written by Ben Shane Lim, theedgemalaysia.com
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