Thursday, August 30, 2012

DRB-Hicom puts RM1b in to rush Proton City


Business Times: Wed, Aug 29

[PETALING JAYA] The DRB-Hicom Bhd announcement that it is investing RM1 billion to accelerate the development of Proton City in Tanjung Malim, Perak, points to a move to consolidate Proton's manufacturing activities in a single location, industry analysts told The Star newspaper.

They pointed to reports claiming that Proton's manufacturing land bank of 250 acres (100 hectares) in Shah Alam could have a gross development value of more than RM1 billion, says a report in the daily's business section, Starbiz.

"We think that a property development play of the Shah Alam land bank would be a good move, as the value of the Shah Alam real estate can be extracted to fund Proton's plans," said one analyst.

However, others pointed out that DRB-Hicom would need to look at issues such as the costs of moving the production facilities from Shah Alam to Tanjung Malim as well as staff concerns.

"It would not be easy because employees in Shah Alam are not keen on moving to Tanjung Malim. Also, would DRB-Hicom want to incur the one-time costs and deal with the hassles of moving all the equipment and facilities?" one analyst questioned.

Another analyst said the planned RM1 billion investment by DRB-Hicom was likely to be more of a property development play in Proton City.

"Based on the news reports, this is not just about investing in machines and vehicle production facilities. Perak Mentri Besar Dr Zambry Abdul Kadir had spoken about infrastructure development in the area, including better road access to Proton City from the North-South Expressway as well as building commercial areas and schools," he noted.

OSK Research said in a report late last year that a potential sale of Proton's Shah Alam land bank could fetch at least RM500 million. The unit also pointed out that DRB-Hicom could be keen on developing Proton's land bank in Shah Alam for its housing development arm.

Automotive conglomerate DRB-Hicom took over and privatised national carmaker Proton this year.

Dr Zambry was recently reported as saying the development of the 4,000-acre Proton City is set to be re-ignited after slowing down since it started 15 years ago.

According to Dr Zambry, DRB-Hicom plans to invest RM1 billion in the next five years and make Tanjung Malim the main Proton car manufacturing centre.

Dr Zambry said Tanjung Malim was not fully developed as an automotive city, and only about 30 per cent of the land had been used, the Malaysian paper said.

According to the Proton City website, the township consists of residential, commercial, institutional as well as industrial parcels with seven lakes.

It is located about 5km north of Tanjung Malim, and 90km from Kuala Lumpur.

Besides the RM1.8 billion Proton car assembly plant, it also houses Universiti Pendidikan Sultan Idris.

On its website, Proton says Proton City is targeted to be fully developed by 2020, and aims to be home to Malaysia's automobile industry.

However, some analysts say the development of Proton City is not a major priority for DRB-Hicom, which needs to focus on rectifying the problems in the national carmaker and bringing it to greater heights.

RHB Research analyst Alexander Chia said DRB-Hicom's focus must be to fix issues at Proton.

Mr Chia said Proton's vehicle manufacturing plant in Tanjung Malim at present has a capacity utilisation rate of between 40 per cent and 50 per cent.

"Without economies of scale, Proton cannot make cars cheaply enough to compete. The development of Proton City is a secondary objective."

"DRB-Hicom needs to bring in a technology partner. Volkswagen is a possibility. Such a deal has to be win-win for all parties involved. Perhaps Volkswagen can use the extra capacity at Proton's facility in Tanjung Malim as an assembly hub to expand its presence in Asean," said Mr Chia.

The Proton plants in Tanjung Malim and Shah Alam have an annual production capacity of 150,000 and 200,000 vehicle units respectively, StarBiz said.

Last year, the Tanjung Malim plant produced 52,235 units while the Shah Alam facility produced 114,645 units.

However, the Proton plant in Tanjung Malim can be expanded to have a maximum production capacity of up to one million cars per year.

  

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