DRB-Hicom : Japan news: Suzuki keen on Proton stake BUY

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DRB-Hicom : Japan news: Suzuki keen on Proton stake  BUY

Kyodo News International reported on Wednesday that Suzuki Motor Corp has expressed interest in acquiring a stake in Proton to boost its business in Malaysia. The newswire said Suzuki may aim to acquire over 50% of Proton and place the Malaysian company under its wing, and that executives of the two companies have already met in Japan to discuss the issue.  Recall that both Bloomberg and Reuters had named Suzuki as being part of the process prior to this, with the former reporting that Proton executives had planned to meet Suzuki this week followed by Renault next week. Suzuki and Proton already have a long-term MoU and licence agreement, and the partnership looks to bear two models for Proton, beginning with the rebadged Suzuki Ertiga MPV planned for this month.

DRB-Hicom had last week said it had a shortlist of five partners and is keeping to the deadline of mid-2017 to find a foreign strategic partner for Proton. The company has not ruled out selling a majority stake in Proton but will in any case retain a substantial stake, and it said it will review what is offered before deciding how much of Proton to give up.

To recap, the key objectives DRB-Hicom wants to accomplish for Proton from the tie-up are: - (1) A significant boost in production volume. Proton is currently utilising only 35% of the total capacity of its two production plants (total capacity: 355K units/year; Shah Alam: 195K, Tanjung Malim: 160K). (2) To close the technology gap with its rivals. (3) To share development costs in Proton. We maintain our BUY call on DRB-Hicom with a fair value of RM1.80/share This is based on a P/B ratio of 0.53x, below its 10-year historical mean and five-year mean of 0.6x.

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