KULLIYYAH OF ECONOMICS AND MANAGEMENT SCIENCES
CORPORATE FINANCE
(FIN 4040)
CASE PROJECT:
“PEUGEOT'S MAKER PSA, SUZUKI AND RENAULT KEEN TO
PARTNER PROTON”
GROUP MEMBERS:
1328350 ANIS SYAZIANIE BINTI CHE MOHD ZAIMI
1323568 SHARINA AZLEEN BINTI ERMAN EFENDI
1321976 AFIFAH NABILAH BINTI MOHD SAFEI
1329010 MUNIRAH BINTI RAMLI
1322836 RUZANA BINTI SUHAIMI
SECTION: 4
SESSION:
SEMESTER 1, 2016/2017
LECTURER:
DR. ROSLILY BINTI RAMLEE
SUBMISSION DATE:
27TH
NOVEMBER 2016
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CONTENTS
INTRODUCTION .................................................................................................................................. 3
SUMMARY OF MAIN ARTICLE ........................................................................................................ 3
ISSUES ................................................................................................................................................... 4
QUALITY OF PROTON’S CARS ..................................................................................................... 4
PRICE OF PROTON’S CARS ........................................................................................................... 4
PUBLIC PERCEPTION TOWARDS PROTON’S CARS................................................................. 4
DISCUSSIONS ON THE CAR MAKERS ............................................................................................ 5
PSA PEUGEOT CAR MAKERS ....................................................................................................... 5
SUZUKI .............................................................................................................................................. 6
RENAULT .......................................................................................................................................... 7
ANALYSIS BASED ON RATIO ANALYSIS ...................................................................................... 8
OPINION BASED ANALYSIS ............................................................................................................. 9
3
INTRODUCTION
Perusahaan OTOmobil National (Proton) is the first Malaysian national automobile
manufacturer. It was founded in 1983 during Tun Dr. Mahathir Mohamed’s era. In 1993,
Proton was able to obtain 74 percent of domestic market share. However, when Proton started
to produce their own models and due to several qualities and services issues, their market
share declined to about 15 percent. According to Titikorn Lertsirirungsun (2016), ASEAN
manager at consultancy LMC Automotive, “If Proton need to develop their own technology
or design, they need more money”. This had supported Proton’s decision to search for foreign
partner in 2007 which had attracted industry giants such as Volkswagen and General Motors.
However, the negotiations were called off after Malaysia refused to give them a controlling
stake. In 2012, DRB-Hicom took over Proton. This paper aims to investigate the most
profitable partnership for Proton to help them revive in the industry.
SUMMARY OF MAIN ARTICLE
The main article for this paper is ‘Peugeot’s maker PSA, Suzuki and Renault keen to
partner Proton’ by REUTERS. According to the article, due to the profit being hit by sub-par
cars, poor after-sales service and tough competition, Proton is currently in search of a partner
to help revive their profit. This is proven as the financial year ended 31st March 2016 of
DRB-Hicom had shown net losses of RM 991.90 million due to the poor performance and
tough competition in Proton. Therefore, Proton had sent partnership proposals to nearly 20
car makers earlier this year. Among all of the car makers, at least three firms including
Peugeot maker PSA, Suzuki and Renault have signalled interest and responding to the
proposal initiated by the ailing Malaysian car maker Proton. However, all three of the car
makers refused to comment due to confidentiality. On the other hand, DRB-Hicom has not
ruled out selling a majority stake in Proton, and may also consider selling British sports and
racing car brand Lotus, owned by Proton. Besides, Proton and DRB-Hicom also do not give
any immediate comment on this matter.
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ISSUES
QUALITY OF PROTON’S CARS
Recently, it was revealed that Proton was recalling about 100,000 of its vehicles from
the Preve, Exora and Suprima models, due to a cooler hose issue, which could likely rupture
once the car exceeded the 40,000 km mileage mark. Proton admitted that they knew about the
issue earlier, but, they were not publicized the problems. The Malay Mail Online reported
that the Proton CEO, Abdul Harith Abdullah said that they were keeping silent on the
problem to avoid from publicising the defects discovered in their vehicles. Thus, the faulty
items were quietly replaced when the owners brought their cars in for maintenance checks.
PRICE OF PROTON’S CARS
In the recent years, Proton has been facing declining vehicle sales which have affected
its cash flows. This is a serious matter as Proton plays an important role as the national
automobile industry with 12 000 workers directly under it while 50 000 people are employed
under various vendor companies.
During its foundation in 1983, billions of ringgit from tax payers had been spent in the
process. Apart from that, the Government had increased the import duty for other cars and car
parts in order to encourage people to buy Proton. However, the facts that we had been paying
higher prices for all cars including Proton still has not been sufficient to save Proton which
have already been sold for five times.
Proton cannot blame the users for not buying their models or use other external
factors like the poor economy or the decline in the Ringgit Malaysia. They should realize that
by increasing the prices of their car models at a time will also not going to revive the sales.
This is because the users realize that despite of buying the Proton’s cars, they can buy other
cars with similar prices, but, with better quality.
PUBLIC PERCEPTION TOWARDS PROTON’S CARS
According to Tun Dr. Mahathir Mohamad, the public perception was the main
problem faced by Proton as the public have negative perception of the quality of its cars. This
is following the declining sales in Proton for the fifth straight year. Although the Proton
group chairman had mentioned that the current engineering team is good and professional
5
enough to produce good cars in Proton, still, the public perception towards Proton is that it
has poor-quality cars and cannot be good as a Japanese car.
DISCUSSIONS ON THE CAR MAKERS
PSA PEUGEOT CAR MAKERS
PSA Group is a French-based company in automobiles industry. There are several
brands of automobiles under this group including Peugeot, Citroen, Mister Auto, DS, Peugeot
Citroen Moteurs and Banque PSA Finance. In Malaysia, the two most popular car brands
under PSA Peugeot Citroen would most probably be Peugeot and Citroen. PSA Group is also
known as PSA Peugeot Citroen. As mentioned before, PSA Group is one of the companies
that are responding to the proposal sent by Proton to nearly 20 automobile companies in order
to create a strategic partnership earlier this year. According to Lee (2016), a PSA spokesman
told the news agency that Peugeot confirmed that it is responding to a request for proposals
initiated by Proton and its shareholders, but, he refused to clarify about the actual response
and the content of Proton’s proposals.
Previously in 1996, Proton had already experienced a strategic alliance with PSA
Peugeot Citroen for the purpose of technology transfer. As a result, Proton Tiara or also
known as the Malaysian Citroen AX was produced. However, four years later, the production
of Proton Tiara was ended due to its failure to compete with Perodua. Nevertheless, the
experience of Proton working with PSA Peugeot Citroen could be considered while choosing
for the best partner among the other two potential automobile companies which are Renault
and Suzuki. Besides, as Proton’s goal is to leverage the technological expertise of a major
global automobile manufacturer in areas such as product development and quality
improvement while optimizing the capacity utilization of its plants, PSA Group can be a good
partner due to its advancement in technology. On the other hand, for PSA Group, the
agreement is expected to increase the sales of Peugeot and Citroen vehicles in Malaysia and
serve as a foundation for developing business in the ASEAN region. Moreover, during this
year, it had been reported that PSA Group is planning to build a factory in Southeast Asia
with a focus on Indonesia, Thailand and Malaysia as it is now widening its international reach
to reduce its reliance on a dynamic European home market (Ania Nussbaum, 2016).
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In this project, we are going to analyse which is the best companies between PSA
Group, Renault and Suzuki that will be the most profitable strategic partner to Proton. The
field related to Corporate Finance is Financial Statements and Long-Term Financial Planning.
In order to calculate the profitability of PSA Group, we are using the Profitability Measures.
The calculations involve in Profitability Measures are Profit Margin, Return on Assets and
Return on Equity. In order to perform a timely and relevant analysis, the Profitability
Measures are performed for the past five years which are 2011, 2012, 2013, 2014 and 2015.
2011
(%)
2012
(%)
2013
(%)
2014
(%)
2015
(%)
Profit Margin:
Net Income / Sales 0.98 -9.04 -4.28 -1.32 1.64
Return on Assets:
Net Income / Total Assets 0.86 -7.49 -3.72 -1.17 1.63
Return on Equity :
Net Income / Total Equity 4.25 -42.35 -27.74 -8.74 9.07
SUZUKI
Suzuki Motor Corporation is a Japanese company that is founded on October 1909.
Suzuki has a specialization in manufacturing automobile such as four-wheel drive vehicle,
motorcycles, all-terrain vehicles, outboard marine engines, wheelchairs, and a variety of other
small internal combustion engines. Moreover, as the fourth largest Japanese automotive
company, Suzuki excels in providing high-quality engines and known for using a low-cost
strategy where it relies on high volume of sales to boost its profits.
According to the ‘World Cars Brand Ranking’ for the first nine month of the 2016, it
shows that Suzuki rank as a global car brand drops from 16th place in 2015 to 19th place in
2016. This is proven when the consolidated net sales of Suzuki drop from 1,131,713 unit in
2015 to 1,049,727 unit in 2016 with a negative variance 7.2 percent. On the other hand,
Suzuki global production in 2015 was 3,034,081 unit and for the first nine month of the 2016
is 2,203,740. As one of the potential partner for Proton, it is necessary for us to look at the
Suzuki’s public perception, quality, price and cost of production, and research and
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developments, to grasp a better understanding of the company and the value added that
Suzuki can bring to Proton.
In relation to the article, the partnership with Suzuki is received well by Proton since
Proton chief executive officer, Datuk Abdul Harith Abdullah said that since Suzuki is strong
for its technology and expertise in producing smaller engine segment, hence, this
collaboration will complement Proton’s long-range product plan. Moreover, Proton will
receive tremendous benefits from this collaboration such as able to complete the offering of
different segment of vehicles in Proton, and reduce its research and development and
production n cost. Since Suzuki is still within the top 20’s in the ‘World Cars Brand
Ranking’, it might improve Proton’s market share in Malaysia and boost the confidence in
Proton’s brand that has a decline. This collaboration will also give opportunity for Proton to
introduce new models in terms of compact and small car categories which will lead to
improve Proton’s sales volume. If this collaboration is successful, Proton could potentially
overtake Perodua, which is currently the market leader in Malaysia’s automotive market.
2011
(%)
2012
(%)
2013
(%)
2014
(%)
2015
(%)
Profit Margin:
Net Income / Sales 1.73 2.15 3.12 3.66 3.21
Return on Assets:
Net Income / Total Assets 1.96 2.38 3.36 4.01 3.16
Return on Equity :
Net Income / Total Equity 4.70 5.51 7.53 8.69 6.90
RENAULT
RENAULT 2011
(%)
2012
(%)
2013
(%)
2014
(%)
2015
(%)
Profit margin =
Net Income / Sales
4.91 4.29 1.43 4.60 6.23
Return on asset =
Net Income / Total Assets
2.93 2.39 0.78 2.41 3.25
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Return on equity =
Net Income / Total Equity
9.03 7.33 2.49 7.99 10.76
ANALYSIS BASED ON RATIO ANALYSIS
Year 2013
(%)
2014
(%)
2015
(%)
CAR MAKER PSA SZ RN PSA SZ RN PSA SZ RN
PM -4.28 3.12 1.43 -1.32 3.66 4.60 1.64 3.21 6.23
ROA -3.72 3.36 0.78 -1.17 4.01 2.41 1.63 3.16 3.25
ROE -27.7 7.53 2.49 -8.74 8.69 7.99 9.07 6.90 10.76
Return of Assets (ROA) shows the profit per ringgit of assets. From the analysis that
we made based on the financial information of the latest three years, Renault was more
profitable than other company by showing a consistent growth in ROA. For every 1% of the
asset, Renault was able to generate 3.25% in 2015 and is the highest ROA that it achieved
over the past 3 years period. Suzuki also gives a good figure in their financial status as can be
seen from 2011 to 2014, which shows an increasing ROA in the long run. The company also
manages to achieve a high ROA and profit margin (PM) over the past 5 years. While PSA
Group indicates that the company was not doing very well and often incurred losses prior to
2015. However, the ROA was getting better from year to year even though it often showed a
negative figure prior to 2015. Thus, Proton should consider PSA Group least compared to
Renault and Suzuki which clearly showed a higher ROA and profit margin.
Next measurement to be analyzed is the return on equity (ROE) which is the most
important element for the shareholder to invest in the company. Suzuki shows a growth in
ROE from 4.7% to 6.9% over the 5 years with the latest one indicates that 1 ringgit of equity
can generate 6.9% of profit to the company. It shows that as more equity invested in Suzuki,
the profit will be increased as many as possible. It is really suggested that Proton should
cooperate with Suzuki because it can attract more investor to invest in the partnership of both
companies. But, for the PSA GROUP, ROE might be greater in 2015, however, its history
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shows that the company was experiencing a big loss in 2012 by getting -44.35%. Therefore,
the investors will think twice to invest in the company because they afraid that the company
will not manage to maintain the high ROE in the future.
OPINION BASED ANALYSIS
Few years back in 1990’s era, Proton can be considered as one of the best Malaysian
car brand with the production of Proton Wira and Proton Perdana which were the symbol of
Malaysian’s pride. During that time, Proton was the leading car makers with high expectation
from the public in Malaysia until most of the global car makers started to enter and invest in
Malaysian market. However, somewhere along the way, Proton started to break down and no
longer received full support from the public. Some people say it is because of the
management of the Proton which was corrupted while some say it is because of the
unreasonable high price of Proton cars and its replacement parts with average or even low
specifications and performance. No matter what are the causes of the bad reputation of Proton
car makers, it is undeniable that Proton has been doing very badly in both sales performance
and the development of the cars. We can see the sales generated by Proton is fluctuated and
unstable while there are many review on the unsatisfied performance of Proton cars and the
services given by Proton’s car service centre.
Even though Proton has generated losses over the year, recently, Proton tried to
introduce new cars which are supposed to fulfil the demand of the customers. Proton
improves most of the specification of the new cars especially in term of safety. The best
example is Proton Iriz which is said as the safest compact car in Malaysia due to its almost
perfect safety measures and the new model of Proton Perdana which was a result of Proton’s
collaboration with Honda. This shows that Proton has the ability to improve the company’s
reputation by improving its services and performance. Proton can do it if they really focused
on doing it. Therefore, the decision to perform a partnership with global brand car makers is
one of the wise decisions that Proton makes to improve its car performance and brand
reputation.
In this case, it is said that Suzuki has the highest possibility as a successful candidate
due to the latest signed memorandum of understanding (MoU) and license agreement
between Proton and Suzuki for a long-term strategic collaboration and partnership. This
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grants Proton access to Suzuki’s models, platforms, power train and automotive technology
besides the permission to sell rebadged Suzuki’s cars. It is also supported by the good
performance in the Suzuki’s financial status which clearly shows that Malaysians are buying
and can afford to buy Suzuki’s cars compared to PSA Peageot and Renault. On the other
hand, Proton had been trying to form collaboration with PSA Group for a few times before,
but, there is still no results showed from all of those meeting and talking. This shows that, no
matter how good and great PSA Group cars, their cars are still pricy and unaffordable to most
Malaysians. Therefore, we suggest that Proton should take advantage of their latest
collaboration with Suzuki to form a deeper relationship by forming the partnership with
Suzuki. Who knows, one day, Proton’s cars can be as good as a Japan’s cars with the latest
technology brought by Suzuki.
CONCLUSION
This article shows that Proton has the opportunity to increase the sales and improve
the research and development if it performs a partnership with any three of the global car
makers. What measures will determine which company is the best one and which company
will give most benefits to Proton are the main issues that we discussed. In order to do the
evaluation, a set of ratio analysis has been done in which we find profit margin (PM), return
on assets (ROA) and return on equity (ROE). From the analysis made, we can conclude that
PSA Group is out of the question, where PSA Group is not suggested for the Proton to form a
partnership, while, Suzuki is the best out of them to partner with Proton. Proton may also
consider Renault but from the analysis made, we conclude that Suzuki is still better than
Renault.
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REFERENCES
Peugeot's maker PSA, Suzuki and Renault keen to partner Proton. (n.d.). Retrieved October
9, 2016, from http://www.nst.com.my/news/2016/09/175506/peugeots-maker-psa-suzuki-
and-renault-keen-partner-proton
Sidhu, J. S., & Huang, T. (2015). Proton's fight for survival. Retrieved October 10, 2016,
from http://www.thestar.com.my/business/business-news/2015/07/04/protons-fight-for-
survival/
Y. (2016). Malaysians have sacrificed enough for Proton. Retrieved October 19, 2016, from
http://www.malaysiakini.com/news/330002
Lim, A. (2016, May 23). Renault and Groupe PSA supposedly in talks with Proton over a
possible strategic partnership – report. Retrieved November 25, 2016, from
http://paultan.org/2016/05/23/renault-and-groupe-psa-supposedly-in-talks-with-proton-over-
a-possible-strategic-partnership-report/
H. (2016, September 28). Up To 51 Percent of Proton Up For Sale – Skoda, Suzuki ...
Retrieved November 25, 2016, from
https://www.bing.com/cr?IG=C7BDD163F27441A5A700DA56B812C95E&CID=0BDA97
A3016464D527F89E79005565F4&rd=1&h=0NE29iGpTLHvz6bzzyd6kQ96HSU8RudFYW
RsAkXmMcs&v=1&r=https://www.carlist.my/news/51-percent-proton-sale-skoda-suzuki-
renault-peugeot-interested/41747&p=DevEx,5084.1
Lee. J, (2016). PSA confirms partnership interest in Proton, Suzuki, Renault also eye deal;
Lotus could be sold – report. Retrieved November 26, 2016, from
http://paultan.org/2016/09/23/proton-psa-confirms-partnership-interest-suzuki-renault-also-
eye-deal-lotus-could-be-sold-report/
Ania Nussbaum (2016). Peugeot Maker Plans Southeast Asia Factory as Global Push
Widens. Retrieved November 26, 2016, from
http://www.bloomberg.com/news/articles/2016-09-07/peugeot-maker-plans-southeast-asia-
factory-as-global-push-widens
Peugeot SA (2016). Retrieved November 26, 2016 from
http://financials.morningstar.com/ratios/r.html?t=PEUGF
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Suzuki Motor Corp. (2016). Retrieved November 26, 2016 from
http://financials.morningstar.com/ratios/r.html?t=7269
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APPENDIX
SALES IN JUNE 2016 FOR PROTON, PSA PEUGEOT, RENAULT AND SUZUKI BY
MALAYSIAN AUTOMOTIVE ASSOCIATION
SALES IN JULY 2016 FOR PROTON, PSA PEUGEOT, RENAULT AND SUZUKI BY
MALAYSIAN AUTOMOTIVE ASSOCIATION
SALES IN AUGUST 2016 FOR PROTON, PSA PEUGEOT, RENAULT AND SUZUKI
BY MALAYSIAN AUTOMOTIVE ASSOCIATION
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