Business

Tuesday October 30, 2012

Proton partners Honda, many surprised

By CHOONG EN HAN
han@thestar.com.my


The choice of Honda being the first FSP post-takeover by DRB-Hicom was a surprise as well, as Honda normally would explore and expand markets on its own, and there wasn’t many tie-ups involving the Japanese marque. The choice of Honda being the first FSP post-takeover by DRB-Hicom was a surprise as well, as Honda normally would explore and expand markets on its own, and there wasn’t many tie-ups involving the Japanese marque.

PETALING JAYA: Surprise as it may seem to some, Proton Holdings Bhd is going to partner Japanese automotive giant Honda Motor Co Ltd to explore opportunities in a wide scope of business areas, involving technology, products and sharing of facilities.

DRB-Hicom Bhd, parent to Proton, said in filings that the opportunities were endless and that a foreign strategic partner (FSP) like Honda would enable Proton and DRB-Hicom to grow as an original equipment manufacturer (OEM).

It said the freshly inked collaboration agreement signifies the potential of a long-term strategic collaboration with Honda, and it added hints of things to come including in the areas of technology enhancement, new product line-up, platform and facilities sharing.

However, with the sketchy details at this point in time, analysts believe the non-exclusive agreement would be just a prelude to more strategic collaborations should the need and opportunity arise.

RHB Research analyst Alexander Chia said the agreement didn't appear to prevent Proton from entering into other collaborations with any other global OEMs.

“Any global OEMs for that matter would be capable of bringing Proton to a better place. Honda has a comprehensive product range, particularly in the medium to small car market, including hybrid technology, which is a wide area the parties involved can delve into,” he said.

He said the choice of Honda being the first FSP post-takeover by DRB-Hicom was a surprise as well, as Honda normally would explore and expand markets on its own, and there wasn't many tie-ups involving the Japanese marque.

“The timing of the agreement is also sooner-than-expected, considering it is still digesting Proton,” he said.

Established in 1948, Honda has grown to become the world's largest motorcycle manufacturer and one of the leading automakers.

It currently develops, manufactures and markets a wide variety of products, ranging from small general-purpose engines and scooters to specialty sports cars with its global network of 466 subsidiaries.

In 2003, its worldwide automobile production reached a whopping 50 million units, a relatively huge number compared to Malaysia's total industrial volume of 600,000.

Chia reckoned that the immediate collaboration would be on technology enhancements, such as the joint development of a new engine.

A Honda-based Perdana replacement model shouldn't be ruled out, he said.

“The Campro engine that Proton developed during ex-CEO Tengku Tan Sri Mahaleel Tengku Ariff's time is already reaching the end of its shelf life. With much stricter global emission regulations, it is the right time for them to develop a new engine,” he said.

CIMB Research analyst Lucius Chong said that with the agreement, Proton was basically squaring it off with Perodua, which also has a relationship with another Japanese automotive giant, Toyota, via its subsidiary Daihatsu.

“On one end Honda has DRB-Hicom as its local partner, while Toyota has UMW Holdings. These two will square off in the future. It is a surprise the agreement was announced so fast,” he said.

He said the strategic collaborations were just another way for DRB-Hicom to harvest Proton's low hanging fruits, besides rationalising its current operations.

Recently, Honda Malaysia Sdn Bhd, in which DRB-Hicom owns an associate 34% stake, acquired 50 acres next to its existing manufacturing facility in Pegoh, Malacca, where the company aims to double its installed capacity to 100,000 units a year.

It has committed a capital expenditure of RM1bil to undertake the said capacity expansion.

OSK Investment Research automotive analyst Ahmad Maghfur Usman also finds the partnership surprising, as according to him, Honda has always been on its own.

“I would have expected more common names that were thrown around in the media like Volkswagen. This is a positive development for Proton and I wouldn't rule out the possibility of rebadging some of Honda's current line up,” he said.

He said a very likely candidate would be the Brio compact car, which was introduced in Thailand and India.

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