Malaysian carmaker Proton finally landed a foreign partner in Chinese automaker Zhejiang Geely Holding, but not all analysts were convinced the deal marked a turnaround point for the one-time national powerhouse.
"After the acquisition, the biggest challenge for Zhejiang Geely is to turn around Proton," analysts at Singapore-based UOB KayHian said in a note on Thursday. "Proton has suffered sustained losses, and it received 1.5 billion ringgit (US$338 million) in government aid last year on condition that it pursues a turnaround plan and seeks a foreign partner."
The brokerage noted that it wasn't the first time Geely tried to enter the Malaysian market, previously attempting and failing to set up a plant with a local partner.
"If Zhejiang Geely is unable to turn Proton around in foreseeable future, Proton would become a burden," UOB KayHian said.
Another potential issue could come from Geely lacking majority control of Proton.
Geely Holding, which also owns Sweden-based Volvo, will take a 49.9 percent stake in Malaysia's iconic, home-grown, but long-struggling carmaker Proton. Malaysian conglomerate DRB-Hicom will retain a 50.1 percent stake.
The deal marked the culmination of at least a decade of attempts to marry the politically sensitive Proton with a foreign carmaker, with GM and Volkswagen both walking away at different times.
In what might represent the concerns over Proton, Citi, for one, noted that the deal would improve the valuation of the seller, raising its target price for DRB-Hicom's shares to 2.30 ringgit from 1.86 ringgit, keeping a Buy/High Risk call on the stock.
"Re-rating is imminent with the stake sale removing DRB's largest overhang, as well as a more positive outlook for Proton," Citi said in a note late Wednesday.
Citi said the target increase was to reflect a higher implied valuation for DRB-Hicom's remaining Proton stake, a government grant accompanying the deal and the sale of a 51 percent stake in British sports-car brand Lotus to Geely for around 556 million ringgit, which was also part of the deal.