January 9, 2012

DRB-Hicom may be Proton's best suitor: OSK

Stock Name: PROTON
Company Name: PROTON HOLDINGS BHD
Research House: OSKPrice Call: BUYTarget Price: 5.87



DRB-Hicom Bhd may just be the best bidder for Khazanah's 42.7 per cent stake in Proton Holdings, said OSK Research.

In a research note today, OSK said DRB-Hicom may just be the best suitor out there despite bids by Proton chairman Datuk Nadzmi Mohd Salleh and Tan Sri Arumugam Apavoo Packiri and Gerald Lopez of Genii Capital, a private equity firm with a stake in the Lotus Renault GP Formula One Team.

"We opine that the attempts from Nadzmi and other joint bidders do not represent enough value to ensure Proton's turnaround.

"We still reiterate that DRB is currently Proton's best suitor given its tie-up with Volkswagen, which intends to set up a large Asean production hub in Malaysia," it added.

The research house said funding will not be an issues for DRB-Hicom as the group's net gearing ex-bank related assets and liabilities stand at only 17 per cent, as indicated by its last quarterly results.

"This can be easily stretched to 50-70 per cent to acquire Proton and possibly even higher, given Proton's onerous capital expenditure needs and its planned research and development activities and expansion," said OSK.

OSK said DRB-Hicom recently announced that it is raising RM500 million from the sukuk market for working capital and other potential acquisitions and expansion.

"It has an option to maximise this sukuk issue to the tune of RM1.8 billion," it added.

Meanwhile, it was reported in The Edge weekly that Arumugam and Lopez are mulling a joint bid for Khazanah's stake, reportedly for RM6 a share.

"We don't see any value proposition in turning around Proton on the table should these joint bidders acquire Proton, pointing out none of these two joint bidders have a stake or whatsoever relevant experience in the automotive sector," said OSK.

The research house maintains a "buy" call on Proton's shares at an unchanged fair value of RM5.87 premised on a 10 per cent premium to its adjusted Net Tangible Asset per share of RM5.34.

"This includes a revaluation surplus of RM147.6 million on the group's land bank and after stripping off all intangibles and inventories, as well as the estimated equity value of loss-making Lotus," it added. -- Bernama

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