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Higher plant utilisation, new cars possible from Proton-Honda tie-up
Publication Date : 31-10-2012
Analysts anticipate the recent collaboration agreement between DRB-Hicom Bhd and Honda Motor Co Ltd could potentially ramp up the formers plant utilisation rate as well as accelerate its plan to further develop new cars especially in the B segment.
CIMB Research said it had received confirmation from DRB-Hicom's management that the Honda agreement was non-exclusive and that its unit Proton would be free to work with any other partner in future.
“The main agenda is to ramp up Proton's utilisation rate which is currently at 41 per cent and the fastest way to do this is to work with multiple foreign players. It was futile for Proton to keep designing its own cars from the ground up as this requires a significant amount of research and development and capital expenditure.
“Using common platforms from the likes of Honda and perhaps Volkswagen (VW) in the future will not only reduce costs but also bump up the quality and brand perception of Proton cars,” CIMB said in a report yesterday.
From Honda's perspective, CIMB Research believed that it could be using this opportunity to square off against Toyota which was dominant in Malaysia because of its relationship with UMW and Perodua. DRB-Hicom's current relationship with Honda is limited to its 34 per cent associate stake in Honda Malaysia.
From a valuation standpoint, the research house said DRB-Hicom continued to be a top pick in the auto sector as it was still the cheapest Malaysian automotive conglomerate at a calendar year 2013 price-to-earning ratio (PE) of 7.7 times.
On Monday, DRB-Hicom announced that its wholly-owned subsidiary Proton had entered into a collaboration agreement with Honda where both would explore collaboration opportunities in the areas of technology enhancement, new product line-up, platform and facilities sharing.
Following its discussion with the management, AmResearch said that the focus of this tie-up would be to develop a 2.0-litre car via platform sharing.
“We believe it is for the long-awaited Perdana replacement model and could also involve engine development.
“Although Honda has a strong footing in this segment via its Accord model, cannibalisation is not an issue due to distinct pricing.
“We understand that DRB-Hicom targets finalisation of this tie-up within six months,” said AmResearch.
AmResearch said DRB-Hicom was currently trading at an attractive calendar year 2013 PE of 8 times versus its conglomerate peers' 17 times. It is also trading at a steep discount of 41 per cent to its sum-of-parts value.
Meanwhile, Hong Leong Investment Bank (HLIB) said leveraging on the agreement, DRB-Hicom would take the opportunity to develop itself as regional top player in the automotive components and parts segment with world-recognised standard and quality in support of the growing regional automotive industry.
“This will not be confined to Malaysia, but also penetrating into the Indonesian and Thai supply chain.”
HLIB also noted that DRB-Hicom was already a strategic partner for Honda Malaysia, while Honda had selected Malaysia as a regional hub its third in the world after Japan and the United States for manufacturing hybrid cars by 2014-2015, after investing 350 million ringgit (US$144.8 million) capex to double capacity to 100,000 units per annum at its Pegoh plant in Malacca.