HLIB positive on Geely tie-up, keeps ‘buy’ call on DRB-HICOM

KUALA LUMPUR: Analysts have mixed reactions on Proton Holdings Bhd’s agreement with Zhejiang Geely Holding Group Co Ltd.

Hong Leong Investment Bank (HLIB) is positive about the deal and has maintained a “buy” call on shares of DRB-HICOM Bhd with a lower target price of RM2.26.

The investment bank said DRB-HICOM’s forward earnings will improve drastically from reduced stake exposure to Proton’s immediate loss and discontinued exposure to Lotus’ loss (full disposal).

“Proton will leverage Geely for turnaround, which will partially relieve the burden on DRBHICOM, while DRB-HICOM will refocus its resources on other strategic businesses.

“DRB-HICOM also benefits from retaining part of Proton’s valuable non-core assets (including Shah Alam plant and land), cash proceeds of £100m (RM560 million) from Lotus disposal and RM566.7 million payments from Proton,” it said in a research note yesterday.

HLIB expected re-rating catalyst on DRB-HICOM’s valuation with the emergence of Geely as strategic foreign shareholder for Proton.

“We are relatively negative on DRB-HICOM purchasing over Govco Holdings’ redeemable convertible cumulative preference shares of RM1.5 billion in Proton, which has effectively increased itss commitment in Proton’s long-term turnaround plan.

Meanwhile, Public Investment Bank Bhd (PublicInvest) said the research and development grant approval acquired by Proton is positive as it would help Proton regularise its near term cash flow, which should accelerate the turnaround plans.

To this, PublicInvest has maintained its “neutral” call on DRBHICOM with an unchanged target price of RM1.82. Zarina Zakariah