DRB-Hicom Bhd
(April 3, RM1.39)
Maintain add call with a target price of RM1.69: The Edge Malaysia weekly (April 3-9) reported that Chinese automaker Geely Automobile Holdings Ltd  is back in the running to become Proton Holdings Bhd’s (a subsidiary of DRB-Hicom Bhd) foreign strategic partner (FSP), following news that it had pulled out from the bid. This contradicted Geely president An Conghui’s statement, two weeks ago, that Geely had withdrawn its bid to acquire an equity stake in Proton. 

DRB-Hicom’s management recently announced that all bidders were still in the running for the role of Proton’s FSP. It also highlighted that Proton had more than one bidder for the role of FSP. We understand that there were at least two confirmed bidders for Proton — Geely and PSA Group — that affirmed their participation in the first quarter of 2017. Apart from these two bidders, local newswires reported that there were other interested bidders, including Renault SA, Volkswagen AG and Suzuki Motor Corp. 

Overall, we believe this development is positive for DRB-Hicom, as it would raise the likelihood of DRB-Hicom getting maximum value for its stake in Proton. We believe that finding the right FSP for Proton is still DRB-Hicom’s top priority, as it seeks to move forward with Proton’s recovery plan and reduce the negative impact of Proton’s losses.  Furthermore, DRB-Hicom needs to stop the bleeding before Proton’s losses cause its financial position to deteriorate further. The Edge Malaysia weekly reported that Proton is seeking additional funds of RM1.5 billion to RM1.8 billion to satisfy outstanding payments to its vendors.

DRB-Hicom’s management indicated that it is at the tail end of the selection process and is looking forward to completing the search by the end of the first half of 2017 forecast. — CIMB Research, April 3