Stock Name: PROTON
Company Name: PROTON HOLDINGS BHD
Research House: MAYBANK
Automotive sector
Maintain neutral: The proposed merger between Proton and Perodua has been called off. This is not a setback. We have previously argued that the government-driven merger exercise offered minimal operational synergies. A loose collaboration without equity swap makes more sense. Local automakers need to look beyond the domestic market to remain relevant and competitive. We remain 'buyers' on Proton and MBM on undemanding valuations and 'holds' for UMW and Tan Chong.
The government will not force the merger between Proton and Perodua. Any solutions or proposals need to be agreed by both stakeholders. A study, sanctioned by the government, of the possible merger has been carried out by Frost & Sullivan. Its findings were submitted to the prime minister and Cabinet for consideration.
We have previously argued that this merger offers minimal operational synergies. We believe the merger is driven largely by the need to create market size, which in turn will enable shareholders to crystalise higher valuations on their stakes, depending on the pricing for the merger.
The Proton-Perodua merger, in our view, had to clear many hurdles, which involve pricing, stakeholders' role post-merger and operational synergies.
Notwithstanding that, forcing through a merger could see Daihatsu (Perodua's partner) exiting Malaysia and relocating its operations to Thailand or Indonesia.
The domestic market is near saturation point with demand growth projected to slow to 2% to 3% in 2011. Perodua, whose business model appeals more in a rising petrol price environment, will embark on a five-year road map. Proton has turned around, operationally and financially, but it needs to break into the regional market to remain competitive and relevant. This could happen through strategic partnerships with regional carmakers. ' Maybank IB Research, Jan 26
This article appeared in The Edge Financial Daily, January 27, 2011.
Company Name: PROTON HOLDINGS BHD
Research House: MAYBANK
Automotive sector
Maintain neutral: The proposed merger between Proton and Perodua has been called off. This is not a setback. We have previously argued that the government-driven merger exercise offered minimal operational synergies. A loose collaboration without equity swap makes more sense. Local automakers need to look beyond the domestic market to remain relevant and competitive. We remain 'buyers' on Proton and MBM on undemanding valuations and 'holds' for UMW and Tan Chong.
The government will not force the merger between Proton and Perodua. Any solutions or proposals need to be agreed by both stakeholders. A study, sanctioned by the government, of the possible merger has been carried out by Frost & Sullivan. Its findings were submitted to the prime minister and Cabinet for consideration.
We have previously argued that this merger offers minimal operational synergies. We believe the merger is driven largely by the need to create market size, which in turn will enable shareholders to crystalise higher valuations on their stakes, depending on the pricing for the merger.
The Proton-Perodua merger, in our view, had to clear many hurdles, which involve pricing, stakeholders' role post-merger and operational synergies.
Notwithstanding that, forcing through a merger could see Daihatsu (Perodua's partner) exiting Malaysia and relocating its operations to Thailand or Indonesia.
The domestic market is near saturation point with demand growth projected to slow to 2% to 3% in 2011. Perodua, whose business model appeals more in a rising petrol price environment, will embark on a five-year road map. Proton has turned around, operationally and financially, but it needs to break into the regional market to remain competitive and relevant. This could happen through strategic partnerships with regional carmakers. ' Maybank IB Research, Jan 26
This article appeared in The Edge Financial Daily, January 27, 2011.
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