DRB-Hicom’s prospects likely to improve
Relocation of Proton’s operations to Tanjung Malim is also a boon
PUTRAJAYA: DRB-Hicom Bhd is expected to see its long-term prospects improve significantly following the sale of a 49.9% stake in Proton Holdings Bhd and 100% of British automaker Lotus.
The sale of the two key components of its auto business would bring relief from spending vast amounts of money on research and development (R&D) for the running of the companies.
Furthermore, a cash injection of RM1.1bil from the Government for the reimbursement of R&D expenditure by Proton and from the entry of Geely as a foreign strategic partner for Proton will lead to an improvement in its cashflow.
Proton’s financial woes have been a big drag on the books of DRB-Hicom. For the past three quarters of its current financial year, DRB-Hicom had accumulated a loss of RM126mil.
The outlook for DRB-Hicom’s final quarter of its 2017 financial year ended March 31 would be hazy as it has yet again been impacted by Proton’s financial performance as the national car maker has chalked up another loss, based on Proton’s unaudited financial results of RM987.3mil with its net assets falling to a razor-thin RM29.5mil.
Putting pressure on its results would also be the financial performance of Lotus which posted a net loss of RM68mil for its 2017 financial year based on unaudited results. DRB-Hicom has invested RM1.96bil in Lotus.
But once the sale of Lotus for RM555.8mil goes through and with the money from the Government credited to its accounts, Proton will see a nice lift in its cash balances which will total to RM2.95bil. DRB-Hicom has debt of RM7.04bil.
The urgency to repair Proton’s financial accounts was a big criterion for DRB-Hicom in assessing whom it picked as the strategic foreign partner for Proton.
Geely’s willingness to accelerate Proton’s revival towards profitability certainly swayed the decision of picking Geely as its favoured choice, said DRB-Hicom group managing director Datuk Seri Syed Faisal Albar.
Syed Faisal believed Proton would return to the black soon as it did not have to worry about carrying Lotus’ losses on its books once the sale to Geely and Etika Automotive Sdn Bhd, which is the subsidiary of the controlling shareholder of DRB-Hicom.
The money Geely will inject into Proton for a 49.9% stake in the company will be utilised towards capital expenditure and production operations of Proton.
In a filing with Bursa Malaysia, DRB-Hicom said it and Geely would agree on a 10-year business plan for Proton (which would include plans relating to the models to be launched, capital expenditure, manufacturing and sales volumes, technology licence and royalties.)
The joint-venture between Proton and Geely has an ambition to make Proton the leading automaker in Malaysia by market share, at least the third leading automaker in Asean by market share and Proton being EBITDA positive and profitable. Geely has a target of selling 500,000 Proton cars in SouthEast Asia by 2020.
DRB-Hicom is also expected to gain following the relocation of Proton’s manufacturing operations to Tanjung Malim where it has an impressive facility that has been under-uti- lised.
Higher utilisation of capacity would improve Proton’s financials and that of DRBHicom, and the assembly of Volvo cars for the South-East Asia market at the Tanjung Malim plant would add to the bottom line of DRBHicom which would receive a fee for each car assembled there.
In the longer-run, DRB-Hicom is set to gain from the redevelopment of 250 acres of land in Shah Alam where it conducts manufacturing of some models and also runs its research and development activity.
Operations from Shah Alam would be migrated to Tanjung Malim in stages and Syed Faisal said the land in Shah Alam, which is a large track surrounded by some of the more successful housing estates in the Klang Valley, would be sold to DRB-Hicom at a fair price.
Property development is one of DRB
Hicom’s core businesses.