Proton also needs to develop a solid business plan.
KUALA LUMPUR: CIMB Equities Research said the move by Proton Holdings Bhd to issue up to RM1.25bil worth of convertible preference shares to the government is a positive strategy towards the national car maker’s recovery but remain wary of the execution risks.
The research house said on Wednesday it was maintaining its hold rating on DRB-Hicom Bhd
, which owns 100% in Proton, with an unchanged target price of RM0.75, based on 11.0 times CY17F price earnings ratio.
The key risks to its hold call would be deteriorating performance at Proton and stronger contribution from the defence and aviation divisions, it noted.
The Government had agreed on Monday to subscribe to 1.25 billion redeemable convertible cumulative preference shares (RCCPS) issued by Proton via GOVCO Holdings Bhd by way of RM1.25bil cash payment.
CIMB Research had learned that in the event that Proton converts the entire RCCPS and its unpaid dividend, DRB-Hicom’s shareholdings in the automaker would be diluted to about 20.7% and GOVCO would hold the remaining 79.3%.
Overall, it added this could potentially ease the financial burden on DRB’s profitability and balance sheet.
Under the subscription agreement, the research house also learned that Proton is required to seek and identify a potential strategic partner within the next year.
The partner would assist in Proton’s research and development to become a competitive player in the automotive industry at the international level.
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