Shareholders of DRB-HICOM (NOT RATED) approved the acquisition of a substantial stake in  Protonfrom existing shareholder, Khazanah,  atthe EGM yesterday. Subsequently,  DRBwill be obliged to extend a MGO  for allthe remaining shares not already owned by it after the initial acquisition  at the offer price of RM5.50,  which we deem fair and reasonable. We remainskeptical on Proton's turnaround and the kind of profits it could chalk upafter DRB's takeover, but in all fairness, its aggressive  cost cutting shows  that DRB is seriousin bringing  about  change by revamping the management.  With the Proton saga coming to an end, we arediscontinuing coverage on Proton and looking forward to initiating on DRB soon.

Shareholders give nod.  Shareholders of DRB-Hicom (NOT RATED) haveapproved the acquisition of Proton from Khazanah,  at the company's EGMyesterday. The takeover exercise will be completed in the next 7 days. DRB hadproposed to take over Proton by acquiring Khazanah's 42.74% stake at RM5.50 pershare. Subsequently, in compliance  withthe Malaysian Code on Takeovers and Mergers 2010, DRB will be obliged to extenda MGO for all the remaining shares not already owned by DRB at the same offerprice. We deem the offer price fair and reasonable. The said offer price isstill at a premium to our adjusted NTA per share of RM5.34 on incorporating a100% writedown in inventory  as well asLotus and a revaluation surplus on the Shah Alam landbank. We are of the viewthat at RM5.50 per share, DRB may have factored in some asset write-downs,given the fact that the capacity at Proton's plants is only half utilized. Notethat DRB does not intend to maintain Proton's listing.

Long gestationbut  longer term  optimistic. We remain skeptical onProton's turnaround and  the kind ofprofits it can make after  DRB'stakeover. Staff morale has been hit by rumors of the potential acquisition,which essentially does not bode well for vehicle sales, until there is morecertainty on job security. DRB has been cutting costs in all areas and hasindicated  that it would furtherrationalize  the vendors Proton outsourcesfrom. That said, we see a long gestation period as this will involve revamping asupply chain  of more than 250 vendors,with an estimated 32 of the Proton vendors being  Tier 1 suppliers/system integrators, and therest, tier 2 or tier 3 suppliers, supplying more than  4,000 components. Wereckon the rationalization of  the  vendor network  alone could take at least  a year, considering that new production lines  also need to be set up.  Similarly, the dealership  network will also be  trimmed to prevent geographic  overlapping. In all fairness,  these measures  prove that DRB is serious in bringing  about change by  putting in place a newmanagement team (with some old Proton faces too), which would be a mid to longterm positive.