Proton’s fortunes in DRB-Hicom’s hands

PETALING JAYA: Just over four years after DRB-Hicom Bhd took over Proton Holdings Bhd for RM1.2 billion, the conglomerate is stuck between a rock and hard place.
Over the weekend, the government finally admitted that Proton’s current business model was not sustainable after the national car maker came knocking at their door once again for more pocket money.
According to reports, Proton is asking this time for RM3 billion via grants and soft loans. Of course, this is the kind of money that DRB-Hicom does not have.
In the nine months ended Dec 31 2015, DRB-Hicom posted a net loss of RM201.1 million against RM210.4 million in the previous corresponding period while revenue dropped 9% on-year to RM9.54 billion.
The disappointing results at DRB-Hicom were mainly due to its automotive business, particularly from Proton.
So, what now for Proton?
The usual song is for DRB-Hicom to rope in a new shareholder for Proton, namely a strong strategic foreign partner. This is nothing new. It was mentioned in the National Automotive Policy in 2009 as International Trade and Industry Minister Datuk Seri Mustapa Mohamed reminded recently.
Proton had one time, while under state control, stopped its talks with both VW and US rival General Motors within a span of two years.
Analysts believed that a foreign partner is pivotal to Proton’s fortunes, however, that would also mean putting at stake the whole value chain of business from design to after sales.
A research analyst said another route, albeit a bold one, that DRB-Hicom could take is to pare down some of Proton’s underlying assets namely its Shah Alam plant including its distribution dealerships, as well as hiving off loss-making Lotus.
The analyst said that DRB-Hicom could potentially unlock the value in Proton’s plant in Shah Alam, which is sitting on a 250 acre real estate.
“By redeveloping Proton’s manufacturing complex in Shah Alam into an integrated development, it will generate billions of ringgit in gross development value (GDV),” he said.
DRB-Hicom, when it took over Proton, said that it plans to invest RM1 billion over a five year period and make Tanjung Malim the main Proton car manufacturing centre.
The Tanjung Malim plant is to be expanded to produce up to one million cars per year. He also noted that there is value in Proton’s distribution assets.
In 2012, DRB-Hicom streamlined its distribution assets for Proton by merging Edaran Otomobil Nasional Bhd (EON) and Proton Edar in a RM400.8 million transaction.
The re-organisation of Proton distribution saw Proton Edar taking over the business operations of EON for RM195.6 million, its real estate assets for RM147.4 million and the spare parts business for RM57.8 million.
He added that the listing of the Proton distribution business to unlock the values of the merged entity could also be one of the possible scenario but not in the current market.
Another asset that DRB-Hicom could look to dispose is British sports car icon Lotus which has put a dent in Proton’s turnaround plan.
“It's something that Proton could look at,” he said.