Regarding Proton's Cash Per Share

I am not a fan of cash per share yardstick. Like most yardsticks, there are flaws within.

Note. I do hope my English is not too terrible to understand. All I am saying is I am not a fan of the cash per share yardstick. That's all. I am not stating such a yardstick does not work. And like always, if you reckon your style of making money is better than mine, go ahead. I won't lose sleep. :D

Oct 30th 2008, I mumbled the following on Proton.

• The very same cash per share yardstick. Yes, compared to current price of 2.00, a purchase of Proton at 2.00 is damn sexy but the rate that Proton cash per share has diminish since 2005 Q1 (net cash of 4.25) compared to now (net cash of 2.08) is surely a concern, yes?
  
  For example, what if the next 3 years, the net cash continues to diminish about the same rate? And if it does, the cash per share yardstick might not look attractive then, yes?

Today Aseambanker mentioned Proton's diminishing cash per share! LOL! Such a head rush yo! Getting dizzy. LOL!

• Still burning cash. Even excluding the impairment cost and R&D grant, Proton remained operationally loss-making for the second consecutive quarter. In fact, the operating loss was at RM62m (3QFY09: -RM60m). No dividend was declared for 4QFY09. Gross cash plunged 22% QoQ to RM914m whilst gross debt soared 47% to RM358m. This took net cash down by by 37% to RM1.01 per share. Book value per share fell 6% to RM9.25 as Mar 09.

Let's refer back. Say in 2005. If we go back in time to 2005 Q1.

Quarterly rpt on consolidated results for the financial period ended 30/6/2004

Proton then has also 549.213 million shares.

Net Cash = 3420.114 - 1083.896 = 2336.218. Cash per share = 2336.218/549.213 = 4.25.

Let's look at current Proton balance sheer.

Not as attractive as what Proton has in 2005 Q1.

Just imagine, if one had purchased back when Proton announced its 2005 Q1 earnings BASED solely on the attractive cash per share yardstick and held it loooooooooooong term. The end result as today, is not too attractive, yes?

More On The Rumours Of Proton Divesting Edar To EON.

First they write that according To Sources: Proton to divest Edar to EON.

• Sources said that Proton will get EON shares in return for divesting Proton Edar. This would result in both Proton and DRB-Hicom controlling the distribution of the national automaker’s vehicles.
  
  It also effectively puts EON back to its original position as the sole distributor and authorised servicing agent of the national car.
  
  It is not clear how much equity Proton will end up having in EON. At the moment, DRB-Hicom controls 79.05% of EON while Kualapura Sdn Bhd, the private vehicle of Rin Kei Mei, holds 12.1% in the auto distributor.

( those three passages were rather funny in my opinion. On one hand, they have their sources telling them a massive scoop that Proton will be divesting their Proton Edar. On the other hand, they are not clear exactly how much Proton will get. How can their sources be so inefficient? LOL! )

Since it was written by Jose Barrock, the financial reporter who has an incredible history of reporting based on incredible sources in recent years, it surprised me not that Proton and EON denied this corporate exercise.

See blog posting According To Dunno What Rumours: Proton Is NOT .. and Proton says not selling retail arm to EON

On today's Edge Financial Daily, another article was published: Proton in the spotlight

The following passages was rather interesting.

• That has been reflected in the near-doubling of the company’s share price to RM2.99 on Monday from the trough of RM1.53 on March 30 — a 95% jump in three weeks. The stock hit a 12-month low of RM1.50 on March 19. Proton added another 13 sen to close at RM3.12 yesterday, with nearly three million shares done.
  
  The Edge Financial Daily reported yesterday that Proton was looking to inject its distribution arm Proton Edar Sdn Bhd into Edaran Otomobil Nasional Bhd (EON) in return for a stake in the latter.
  
  It also reported that the rationalisation exercise was part of a bigger automotive consolidation exercise with a possible merger between Proton and the second national car project under Perusahaan Otomobil Nasional Kedua Sdn Bhd (Perodua).
  
  In reply to queries by Bursa Malaysia Securities yesterday, Proton said it had signed a memorandum of understanding (MoU) with EON in May last year to rationalise the national car’s sales and service network. Proton said the parties were still in discussions to finalise the deal.
  
  Proton was silent on the speculation of a possible merger with Perodua.
  
  “Further, the board of directors of Proton wishes to inform that as a proactive business entity, Proton and its subsidiaries will continue to initiate and consider various business opportunities and arrangements,” it said.
  
  EON, in a separate statement, said it was not aware of any plan for it to acquire Proton Edar. However, it also pointed to the MoU with Proton on the rationalisation of the sales and service network, adding that an announcement would be made as and when necessary.

Some issues for me.

• That has been reflected in the near-doubling of the company’s share price to RM2.99 on Monday from the trough of RM1.53 on March 30 — a 95% jump in three weeks. The stock hit a 12-month low of RM1.50 on March 19. Proton added another 13 sen to close at RM3.12 yesterday, with nearly three million shares done.

Makes one wonder when the stock had already jumped so high and yet the Edge Financial Daily decided to publish an incredible rumour based on 'sources'.

Makes one wonder the intention of the article, yes?

Market is now closed for lunch session.

Proton is now down 3.8% and DRB-Hicom is down 5.5%.

How?

What if one bought based on what was published on the Financial Edge article, Proton to divest Edar to EON?

Do we call these share buyers as foolish and gullible?

What about the author and its sources?

How?

• The Edge Financial Daily reported yesterday that Proton was looking to inject its distribution arm Proton Edar Sdn Bhd into Edaran Otomobil Nasional Bhd (EON) in return for a stake in the latter.

Today's article was written by Thomas Soon.

I am curious lah.

Since Proton is now in the sportlight and the spolight is caused by the one reporter who is also from the Edge Financial Daily, why can't Mr.Soon ask Mr. Barrock what happened to the news told by his sources?

Now wouldn't that be grand?

Simple solution no?

According To Dunno What Rumours: Proton Is NOT ..

Oh no...

Am I shocked?

Surely not!

The minute I saw Jose Barrock and his sources as the writer for the article featured on this morning posting, According To Sources: Proton To.. and the share already had flown sky high, I sensed that something is not right.

And true enough the evening news confirmed what I suspected: Proton says not selling retail arm to EON

• MALAYSIA'S national carmaker Proton Holdings said today it was not planning to sell its distribution unit to car dealer Edaran Otomobil Nasional (EON).
  
  “Proton would like to clarify that it has no plans to divest its distribution arm, Proton Edar Sdn Bhd, to EON,” the carmaker said in response to a newspaper report.
  
  Citing unidentified sources, a financial daily reported today that Proton was looking to inject Proton Edar into EON.
  
  Proton said discussions with EON on the rationalisation of its sales and service network, which started since April 2008, were ongoing.
  
  The stock ended 13 sen higher at RM3.12 after trading as high as RM3.20 during the day.
  
  Proton share price has doubled from its March low of RM1.50, supported by the outlook optimism of its newly launched Proton Exora multi-purpose vehicle. - Bernama, Reuters

And on the The Edge Financial Daily, this is what was reported: Proton, EON still in talks

• KUALA LUMPUR: Proton Holdings Bhd and Edaran Otomobil Nasional Bhd (EON) are still in talks over the proposed rationalisation of their existing joint distribution network and service centres.
  
  Proton said on April 21 that the discussions were related to a memorandum of understanding announced on May 2 last year for the rationalisation.
  
  “The parties are currently in discussion to finalise the above and shall make all necessary announcements at the appropriate time and in accordance with the requirements of the regulatory authorities. As at todate, there are no developments or agreements that warrant announcement,” it said.
  
  Proton said as a proactive business entity, the national carmaker and its subsidiaries would continue to initiate and consider various business opportunities and arrangements.

According To Sources: Proton To..

On the The Edge Financial Daily: Proton to divest Edar to EON

Yup, it's written by that Jose Barrock!

• Proton to divest Edar to EON
  Written by Jose Barrock & Surin Murugiah
  Tuesday, 21 April 2009 10:49
  
  KUALA LUMPUR: In a move that could kick-start the consolidation of the fragmented automobile industry in the country, national carmaker Proton Holdings Bhd is looking to inject its distribution arm, Proton Edar Sdn Bhd, into Edaran Otomobil Nasional Bhd (EON).
  
  The exercise, expected to be announced next month, will consolidate the distribution arm of the national carmaker into EON.
  
  Sources said that Proton will get EON shares in return for divesting Proton Edar. This would result in both Proton and DRB-Hicom controlling the distribution of the national automaker’s vehicles.
  
  It also effectively puts EON back to its original position as the sole distributor and authorised servicing agent of the national car.
  
  It is not clear how much equity Proton will end up having in EON. At the moment, DRB-Hicom controls 79.05% of EON while Kualapura Sdn Bhd, the private vehicle of Rin Kei Mei, holds 12.1% in the auto distributor.
  
  Rin is the founding member of EON and has a substantial stake in EON Capital Bhd. Despite DRB-Hicom offering a general buyout of EON in August 2007, Rin has stayed firm in not accepting the offer, which has been a stumbling block for DRB-Hicom to take EON private.
  
  This exercise is also said to be part of a bigger plan to consolidate the various auto distribution and manufacturing arms in the country. Speculation is rife of a possible merger between Proton and Perusahaan Otomobil Kedua Sdn Bhd (Perodua).
  
  The government’s investment arm, Khazanah Nasional Bhd, has a 42.7% stake in Proton while UMW Holdings Bhd, a company where Permodalan Nasional Bhd (PNB) has 53%, is the largest shareholder in Perodua with 38% equity.
  
  The second largest shareholder of Perodua with 20% is MBM Resources Bhd, which is also a government-controlled entity. The other shareholders of Perodua are Daihatsu Motor Co Ltd (20%), PNB Equity Resources (10%), Mitsui & Co (7%) and Daihatsu (M) Sdn Bhd (5%).
  
  However, the Japanese parties — Daihatsu Motor Co and Mitsui — have 51% in the manufacturing arm, which has some insisting Perodua is not a national car project.
  
  Proton Edar was established after Proton and EON went separate ways a few years ago after they failed to agree on several issues, including development cost incurred by Proton for new models.
  
  However, Proton Edar quickly outpaced EON and now controls about 60% of the Proton showrooms and service centres in the country while EON has the remaining 40%.
  
  “Proton has been beefing up its retail operations and brought in fresh blood to run its operations… getting it (retail operations) listed has always been part of the bigger plan,” said an auto industry official.
  
  However, it is likely that the current plan will only be announced, and take effect after a memorandum of understanding signed between the two companies, Proton and EON, for the collaboration and rationalisation of distribution networks and service centres, expires next month.
  
  Talk of DRB-Hicom taking equity in Proton has been making the rounds but a senior official of DRB-Hicom denied this.
  
  At the moment, there are three manufacturers with national car status — Proton, Perodua and Naza Group. A consolidation among them makes sense as Proton and Perodua have more than 50% share of the market.
  
  According to the Malaysian Automotive Association, the total number of vehicles sold last year was 548,115, out of which 30.5% were Perodua vehicles and 25.9% were Proton cars. Vehicle sales have been projected to fall by 12.4% to 480,000 units this year.
  
  Proton’s shares surged to their highest level in seven months yesterday, closing 34 sen up at RM2.99, while DRB-Hicom mirrored Proton’s performance and gained 22.5 sen to RM1.08, its highest level since May last year. Strangely, EON’s shares were not traded and ended unchanged at 58.5 sen.
  
  DRB-Hicom’s trading volume surpassed the 25 million mark, while Proton’s breached three million shares.
  
  Apart from the consolidation speculation, the surge in Proton’s share price is also due to it being long under-valued. Its net asset per share stood at RM9.81 as at end-2008.

With such a sexy story told by this SOURCES, how can DRB-Hicom shares not fly!!!

ps: I wonder what will happen to the stock if this story is denied by Proton.

Regarding Proton

Yesterday, the Sunday Star had an article saying that MARC has downgraded the auto industry.

Auto industry placed on negative outlook
Malaysian Rating Corp Bhd (MARC) has placed the automotive industry on negative outlook following dismal sales.

The issue of Proton really struck me here. Last week, there were many articles. Some were stating that the govt is willing to listen to talks to interested parties for its controlling stake in Proton.

How? Sounds rather interesting isn't it? Do you reckon that Proton is worth a buy?

For me, there were two interesting points in the article.

This, it added, was partly reflected by continuous deterioration in sales volume of national carmaker Proton, which was estimated at 120,000 units for 2006 compared with 152,845 units achieved in 2005.

This really says to me that Proton has lost its so-called competitive edge and is now a really different ball game altogether.

On the other hand, the current issue indicates that to me that Govt wants to help and resolve this issue.

In short, i think investing in Proton for its earnings, is rather risky at this moment of time. The problem is there for all to see. Sales is simply lacking. Proton has lost its competitive advantage for me, hence I think investing in it for its earnings is rather risky for we have no idea what will happen next.

But...

If the idea that Proton could move higher due to corporate exercises probably has its own merits.

However, everything seems to be focused too the NTA issue.

For me, on one hand, yes the plant is probably worth a lot and because of this reason, the reasoning to buy based on possibility of a favourable corporate exercise which as they say, unlock this so-called value.

But..

On the other hand, the high fancy plant indicates the inherent problem within Proton itself. As a businessman, the expensive, state-of-the-art machinery serves not much purpose if it does not deliver.

Take footie. One can buy the most expensive player but if the player does not deliver, then the so-called 'net worth' of the player could realistically diminish very soon.

And oh... the next line of that article is also interesting.

• Perodua, the other national carmaker, has effectively taken the pole position in the passenger vehicle segment, capturing about 42% market share with total sales of 118,987 units for the first nine months to September, MARC said.
  

Perodua is doing rather well, isn't it?

So why can't Proton do as well?

Is Proton an Ugly Duckling?

I just wrote on the issues of the automobile industries being a terrible business (See The Ugly Ducklings! ).

Well, how ironic cos there is a newsclip regarding the high inventory in Proton.

"reports that there were some 24,000 units of unsold Proton cars worth about RM900 million last year"

Doesn't it makes you wonder when a business carries such a high level of inventory?

And I am really puzzled that how could this high inventory not be a concern?

Err... rm900 million wor..... rm 900 million is not a concern?

Doesn't car models have a limited time frame when it is deemed as desirable? I mean, doesn't buyers of new cars always want to seek to purchase new sleek models? Who would want to buy a new car of an old model? Say if these cares are still left unsold for another 2 years. In 2008, how many buyers who would want to buy a new Proton model which is 3 years old? So for automobiles, the longer these cars are left unsold, won't the value of the inventory diminish.

Anyhow... do you think this is simply bad management of inventory or is it another issue depicting the tough environment in the automobile industry?

Me? I think it is a combination of both. Yes, the automobile is always a tough business but for this issue, I probably think that perhaps Proton's management of its inventory appears to be lacking.