Tuesday, December 13, 2011

Proton, DRB-Hicom up, but doubts over added value

KUALA LUMPUR (Dec 13): Securities of PROTON HOLDINGS BHD [] and DRB-HICOM BHD [] were the most actively traded stocks on Tuesday as market expectations that DRB-Hicom would likely get the national car maker went into overdrive.

However, analysts said they did not believe DRB-Hicom would be able to add significant value unless a global original equipment manufacturer auto maker could be roped in to participate in a more meaningful way.

At 11.10am, the Proton was up 24 sen to RM4.47 with 6.31 million shares done. Its call warrants, Proton-CG rose 7.5 sen to 46 sen with 39.76 million units done while Proton-CH added six sen to 44 sen (25.08 million units), Proton-CI jumped 11.5 sen to 57 sen (23.21 million).

DRB-Hicom rose four sen to RM2.16 with 3.48 million shares done. DRB-Hicom-CI added 0.5 sen to 6.5 sen (22.80 million units), DRB-Hicom-CG two sen to 12 sen (18.35 million) and DRB-Hicom-CF 1.5 sen to 13 sen (16.25 million).

The KLCI fell 4.78 points to 1,462.32. Turnover was 477.99 million shares valued at RM338.37 million. Losers beat gainers 311 to 176.

RHB Research Institute said The Edge Financial Daily reported on Tuesday that DRB-Hicom could be paying RM5.90 per share for Khazanah's 42.7% stake in Proton. Another report in StarBiz also said that Shanghai Automotive Industry Corp (SAIC) could be keen on acquiring Proton's stake in Lotus Group.

'At RM5.90, Proton could cost DRB-Hicom RM3.24 billion assuming a general offer is triggered. If Khazanah's priority is to exit Proton cleanly (for cash), DRB-Hicom's gearing would rise to 0.78x (from 0.14x),' it said.

RHB Research said at the speculated acquisition price for Proton, the deal would be value neutral for DRB-Hicom assuming Lotus was sold and that could immediately remove debt of over RM800 million and annualised losses of RM260 million off Proton's books.

'Nonetheless, we believe the potential acquisition of Proton will significantly increase DRB-Hicom's business risk profile given the high acquisition cost.

'From Proton's perspective, we do not believe DRB-Hicom will be able to add significant value unless a global OEM auto manufacturer can be roped in to participate in a more meaningful way,' it said.

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