Case 5 Proton Full Assignment

EPPA 4716
KAJIAN KES INTEGRASI

CASE 5: PROTON From SAGA to EXORA
FOR : DR. ROSIATI BT RAMLI
Group Members :
Hasimah Hashim
GA00012
Ngatinah Sepah
GA00028
Nurul Amirah Mohd Noor
GA00036
Siti Sarina Samat
GA00046
Sandramathi A/P Raman
GA00042
Ashadyana bt Asmi
GA00004
Fairuz bt Kasman
GA00009
Kajian Kes Integrasi (EPPA 4716)

Case 5 : Proton : From Saga to Exora
TABLE OF CONTENTS
Pages
Executive Summary
3-6
1. From a financial analysis perspective, has the Proton
6 18
management done a good job?

2. What characteristics should foreign partner have that will enable
18 20
maximum synergies?
3. What broad considerations should determine the parts of Proton
20 22
that are worth keeping and developing and the matter of

operations to be relocated or closed down?
4. From a review of 2009 International Automotive Policy, are
23 25
there areas of possible collaboration with Proton, short of a full

merger / takeover?
5. What other information not included in the case could help
consultant
Saiful
Alawi
makes
more
26 34
meaningful
recommendation? Why?
Recommendations
34 - 36
Executive Summary
Perusahaan Otomobil Nasional Berhad or PROTON was incorporated in Malaysia on 7
May 1983 to manufacture, assemble and sell motor vehicles and related products including
accessories, spare parts and other components. Proton products line up comprised of Saga,
Page | 2

Iswara, Wira, Satria, Satria Neo, Persona, Inspira and most recently, Exora. Protons plant
located in Shah Alam and Tanjung Malim. Severals challenges faced by Proton. One of the
challenge is during the controversial sale of Proton stake in MV Agusta of Italy for a token of 1
to GEVI SpA in which GEVI sold it to BMW for 93 million. Besides, proton also faced legal
suits when being sued by Chinese Joint Venture (JV) partner, Goldstar Heavy Industry Co. Ltd,
for a hefty RMB1 bilion (RM259 million) for failing the venture. However, Proton claimed that
Goldstar failed to obtain a license for the JV.
From the perspective of automotive outlook, Protons car sales comprised of 28% of the
market and hold a 32% market share.National Automotive Policy (NAP), revealed by the
Minister of International Trade and Industry (MITI) was benefit Proton. Several key highlights of
the announced NAP are Approved Permit (AP) system extended to 2015, excise duty structure
remained status quo and import duty structure maintained 0% for CKDs and 5% for CBUs
under the Asean Free Trade Agreement (AFTA).
It was late 2009 and the world was struggling in the process of liberalisation and
globalisation. With the advantages of protectionism, Proton, the Malaysian national car maker
had enjoyed a fair degree of success in the home market, and internationally, with some of its
export models over the last two decades. Technical tie-ups and collaborations with foreign
partners had been a mixed bag of successess and failures. The liberalisation measures announced
by the Malaysian Minister of Trade and Industry in the National Automotive Policy on 28
October 2009 presented Proton with a crossroad situation either build on pass successes
towards a bright future or suffer decline through bad decisions against intense competition. A
multinational auto giant had sensed opportunity in Proton and Malaysia and approached
consultant, Chartered Accountant Saiful Alawi, to review Proton and to recommend whether an
investment and/or collaboration should be considered.
PROTON
Income Statement
For the Year Ended 31st March (RM' Million)
2009
2008
2007
2006
2005
Page | 3

Revenue
6,486.6
5,621.6
4,687.3
7,796.9
8,483.3
(Loss)/Profit before taxation
(319.2)
144.3
(618.1)
18.0
399.3
(Loss)/Profit after taxation
(301.8)
184.6
(589.5)
46.7
442.4
4,174.5
4,476.2
4,319.2
4,963.6
5,054.2
(20.6)
0.0
(27.5)
(54.9)
(137.3)
4,153.9
4,476.2
4,291.7
4,908.7
4,916.9
(54.9)
33.6
(107.3)
8.5
80.6
Dividend paid (sen)
5.0
0.0
5.0
10.0
25.0
Net assets (RM)
9.3
9.9
9.5
10.7
10.7
549,213
549,213
549,213
549,213
549,213
Retained earnings attributable to shareholders

Dividend
Retained earnings carried forward
Share Information
Per Share
Basic (loss)/earnings (sen)
Issued share capital ('000)
PROTON
Balance Sheets
As At 31st March (RM' Million)
2009
2008
2007
2006
2005
Non-Current Assets
Property, plant and equipment
2,827.1
3,150.4
3,169.5
3,302.9
3,288.9
Prepaid land lease payments
0.0
24.1
9.9
10.0
10.1
Goodwill
29.0
29.0
29.0
29.0
29.0
Intangible assets
431.7
275.2
169.1
18.0
14.3
Associated companies
158.4
165.4
169.8
160.4
165.6
Jointly controlled entities
195.6
192.7
223.6
245.3
251.8
Investments
10.4
10.4
10.4
10.4
6.3
Deferred tax assets
5.7
0.0
0.0
105.8
38.4
3,657.9
3,847.2
3,781.3
3,881.8
3,804.4
Inventories
1,395.1
1,100.3
1,273.6
1,389.0
967.1
Receivables
Total Non-Current Assets

Current Assets
1,080.3
1,099.0
1,192.0
1,244.0
1,403.2
Current investments
15.3
20.8
73.4
212.0
201.5
Deposits, bank and cash balances
913.9
1,226.0
626.5
1,586.0
2,454.7
3,404.6
3,446.1
3,165.5
4,431.0
5,026.5
Total Current Assets
Page | 4

Non-current assets held for sale
36.4
0.0
0.0
0.0
0.0
7,098.9
7,293.3
6,946.8
8,312.8
8,830.9
Share Capital
549.2
549.2
549.2
549.2
549.2
Other Reserves
398.5
395.8
389.7
412.7
393.8
Retained earnings
4,153.9
4,476.2
4,291.7
4,908.7
4,916.9
Equity attributable to equity holders of the company
5,101.6
5,421.2
5,230.6
5,870.6
5,859.9
0.0
0.0
0.0
0.0
0.3
5,101.6
5,421.2
5,230.6
5,870.6
5,860.2
101.5
230.5
181.6
100.3
759.6
Total Assets
Equity
Minority interest
Total Equity
Non-Current Liabilities
Long-term liabilities
Deffered tax liabilities
12.2
2.4
0.8
0.8
1.1
113.7
232.9
182.4
101.1
760.7
Payables
1,571.3
1,524.0
1,367.2
1,519.4
1,979.5
Taxation
6.3
1.6
2.2
16.9
2.6
306.0
113.6
164.4
804.8
227.9
Total Current Liabilities
1,883.6
1,639.2
1,533.8
2,341.1
2,210.0
Total Liabilities
1,997.3
1,872.1
1,716.2
2,442.2
2,970.7
Total Equity and Liabilities
7,098.9
7,293.3
6,946.8
8,312.8
8,830.9
Total Non-Current Liabilities

Current Liabilities
Short term borrowings
Liquidity Ratio
Current Ratio
Quick Ratio
PROTON
RATIO ANALYSIS
2009 2008
2007
1.807
1.067
2.102
1.431
2.064
1.233
2006
2005
1.893
1.299
2.274
1.837
Page | 5

Activity Ratio
Average Time Collection
Inventory Turnover
Total Asset Turnover
Fixed Asset Turnover
Profitability Ratio
Net Profit Margin
Return on Equity
Return on Asset
Financial Leverage Ratio
Total Debt Equity Ratio
Leverage Ratio
60.79
4.65
0.91
2.29
71.36
5.11
0.77
1.78
92.82
3.68
0.67
1.48
58.24
5.61
0.94
2.36
60.37
8.77
0.96
2.58
-4.653%
-5.916%
-4.251%
3.284%
3.405%
2.531%
-12.577%
-11.270%
-8.486%
0.599%
0.795%
0.562%
5.215%
7.549%
5.010%
0.281
0.392
0.257
0.345
0.247
0.328
0.294
0.416
0.336
0.507
Question 1
From a financial analysis perspective, has the Proton management done a good job?
In order to comment on the financial of PROTON, analysis on financial ratio need to be done.
There are 5 types of ratios which are liquidity, activity, debt, profitability and financial leverage
ratio. The calculations of each ratio shows accordingly with brief analysis.
1.
Liquidity ratio
1.1
Current ratio
Current ratio = Current assets / Current liabilities
2009
= 3404.60/1883.60
= 1.81
2008
= 3446.10/1639.20
= 2.10
2007
= 3165.50/1533.80
= 2.06
2006
= 4431.00/2341.10
= 1.89
2005
= 5026.50/2210.00
= 2.27
Page | 6

From the ratio analysis in liquidity for Current ratio shows that in year 2005 is 2.274 times and in
year 2009 is 1.807 times which mean the amount shows are greater than 1.0 whereby Proton are
afford to repay short-term debt. The higher the current ratio, the stronger the company's ability to
repay short-term debt but from year 2005 to 2009, the ability to pay debt shows rapidly down by
0.47 times. Based on year 2009, Proton have assets 1.807 times from current liabilities and
Proton provide RM 1.807 current assets for the purpose of repayment of short-term liabilities.
1.2
Quick Ratio
Quick Ratio = (Current Assets Inventory) / Current Liabilities
2009
= 2009.50/1883.60
= 1.07
2008
= 2345.80/1639.20
= 1.43
2007
= 1891.90/1533.80
= 1.23
2006
= 3042.00/2341.10
= 1.30
2005
= 4059.40/2210.00
= 1.84
Measuring the ability of cash and cash assets to cover liabilities. From the ratio analysis in
liquidity for Quick ratio (Acid test ratio) shows that in year 2005 is 1.837 and in year 2009 is
1.067 times, Proton has a ratio of 1.067 times faster which means total asset are met are the same
for every RM 1 liability asserted. This contrasts with the year of 2005, Proton has 1.837 times,
where the different from year 2009 are 0.77 times, meaning Proton when year ahead the ratio is
going down and its shows that Proton not strong in finances and ability to pay debt affected.
These ratios are moderately poor liquidity.
The only difference between the current and quick ratios is that inventories (stock) is omitted
from the quick ratio. Inventories is sometimes very difficult to convert into cash, particularly at
the value placed upon it in the balance sheet. Because it can be difficult to generate liquid funds
through the sale of inventories, it is inappropriate to consider it when looking at the issue of
whether Proton is able to pays its debts quickly.
Page | 7

2.
Activity Ratio
2.1
Average Time Collection
Average Time Collection = Receivables / Sales x 365 days
2009
= 1080.3/6486.6 x 365 days
= 60.79
2008
= 1099.00/5621.60 x 365 days
= 71.36
2007
= 1192/4687.30 x 365 days
= 92.82
2006
= 1244/7796.90 x 365 days
= 58.24
2005
= 1403.20/8483.3 x 365 days
= 60.37
The average collection period ratio indicates the average length of time (in days) a business must
wait before it receives payment from customers who buy merchandise on credit. In Proton, the
higher average collection period ratio in the year 2007 was 93 days and the lowest was 58 days.
The lower the average collection period, the faster a company receives its money from
customers, and the stronger a company appears. On the other end of the continuum, the higher
the average collection period ratio, the longer customers take to pay their bills, and the less stable
a company appears.
2.2
Inventory Turnover
Inventory Turnover
2009
= 6486.60/1395.10
= 4.65
2008
= 5621.60/1100.30
= 5.11
2007
= 4687.30/1273.60
= 3.68
2006
= 7796.90/1389.0
= Sales / Inventories
Page | 8

= 5.61
2005
= 8483.30/967.10 = 8.77
The inventory turnover ratio provides an indication on whether a company has excessive or
inadequate goods (products) in inventory. In Proton, year 2005 show that inventory turnover
ratio is too high 8.77, it means Proton is running out of inventory at various times throughout the
business year. Also, in many cases, businesses with a high inventory turnover ratio will
experience a loss of sales to competitors. On the other hand, the lower an inventory turnover
ratio, the less cash required by a company to finance its inventory, and therefore the stronger a
company generally appears.
2.3

2009
= 6486.60/7098.90
= 0.91
2008
= 5621.60/7293.30
= 0.77
2007
= 4687.30/6946.80
= 0.67
2006
= 7796.90/8312.80
= 0.94
2005
= 8483.30/8830.90
= 0.96
Sales / Total Assets
Asset turnover (total asset turnover) is a financial ratio that measures the efficiency of a
company's use of its assets to product sales. It is a measure of how efficiently management is
using the assets at its disposal to promote sales. The ratio helps to measure the productivity of a
company's assets.
There is no set number that represents a good total asset turnover value because every industry
has varying business models. It also depends on the proportion of labour costs in relation to the
capital required, i.e. whether the process is labour intensive or capital intensive. The higher the
number, the better. If there is a low turnover, it may be an indication that the business should
Page | 9

either utilize its assets in a more efficient manner or sell them. But it also indicates pricing
strategy: companies with low profit margins tend to have high asset turnover, while those with
high profit margins have low asset turnover.
2.4

2009
= 6486.60/2827.10
= 2.29
2008
= 5621.60/3150.40
= 1.78
2007
= 4687.30/3169.50
= 1.48
2006
= 7796.90/3302.90
= 2.36
2005
= 8483.30/3288.90
= 2.58
Sales / Total Fixed Assets
Fixed asset turnover ratio compares the sales revenue a company to its fixed assets. This ratio
tells us how effectively and efficiently a company is using its fixed assets to generate revenues.
This ratio indicates the productivity of fixed assets in generating revenues. If a company has a
high fixed asset turnover ratio, it shows that the company is efficient at managing its fixed
assets. Fixed assets are important because they usually represent the largest component of total
assets. An increasing trend in fixed assets turnover ratio is desirable because it means that the
company has less money tied up in fixed assets for each unit of sales. A declining trend in fixed
asset turnover may mean that the company is over investing in the property, plant and equipment.
The fixed assets usually include property, plant and equipment. The value of goodwill, long-term
deferred tax and other fixed assets that do not belong to property, plant and equipment is usually
subtracted from the total fixed assets to present a more meaningful fixed asset turnover ratio.
3.
Profitability Ratio
3.1
Net Profit Margin
Net Profit Margin
2009
= (301.8)/6486.60
= Profit (after tax) / Revenue
Page | 10

= - 4.653%
2008
= 184.6/5621.60
= 3.284%
2007
= -589.5/4687.30
= -12.577%
2006
= 46.7/7796.90
= 0.599%
2005
= 442.4/8483.30
= 5.215%
Profitability ratios measure a companys ability to generate earnings relative to sales, assets and
equity. These ratios assess the ability of a company to generate earnings, profits and cash flows
relative to relative to some metric, often the amount of money invested. They highlight how
effectively the profitability of a company is being managed. Different profitability ratios provide
different useful insights into the financial health and performance of a company. For example,
gross profit and net profit ratios tell how well the company is managing its expenses.
Net profit margin (or profit margin, net margin, return on revenue) is a ratio of profitability
calculated as after-tax net income (net profits) divided by sales (revenue). Net profit margin is
displayed as a percentage. It shows the amount of each sales Ringgit left over after all expenses
have been paid. Net profit margin is a key ratio of profitability. It is very useful when comparing
companies in similar industries. A higher net profit margin means that a company is more
efficient at converting sales into actual profit.
3.2
Return on Equity (ROE)

Return on Equity
= Profit (after tax) / Total Equity
2009
= (301.8)/5101.60
= - 5.916%
2008
= 184.6/5421.20
= 3.405%
2007
= -589.5/5230.60
= -11.270%
Page | 11

2006
= 46.7/5870.60
= 0.795%
2005
= 442.4/5860.2
= 7.549%
Return on equity (ROE) is the amount of net income returned as a percentage of shareholders
equity. It reveals how much profit a company earned in comparison to the total amount of
shareholder equity found on the balance sheet. ROE is one of the most important financial ratios
and profitability metrics. It is often said to be the ultimate ratio or the mother of all ratios that
can be obtained from a companys financial statement. It measures how profitable a company is
for the owner of the investment, and how profitably a company employs its equity. Historically,
the average ROE has been around 10% to 12%, at least in the US and UK. For stable economics,
ROEs more than 12-15% are considered desirable. But the ratio strongly depends on many
factors such as industry, economic environment (inflation, macroeconomic risks, etc.).
The higher the ROE, the better. But a higher ROE does not necessarily mean better financial
performance of the company. As shown above, in the DuPont formula, the higher ROE can be
the result of high financial leverage, but too high financial leverage is dangerous for a company's
solvency.
3.3
Return on Assets (ROA)

Return on Assets
= Profit (after tax) / Total Assets
2009
= (301.8)/7098.90
= - 4.251%
2008
= 184.6/7293.30
= 2.531%
2007
= -589.5/6946.80
= -8.486%
2006
= 46.7/8312.80
= 0.562%
2005
= 442.4/8830.90
Page | 12

= 5.010%
Return on assets (ROA) is a financial ratio that shows the percentage of profit that a company
earns in relation to its overall resources (total assets). Return on assets is a key profitability ratio
which measures the amount of profit made by a company per Ringgit of its assets. It shows the
company's ability to generate profits before leverage, rather than by using leverage. Unlike other
profitability ratios, such as return on equity (ROE), ROA measurements include all of a
company's assets including those which arise from liabilities to creditors as well as those which
arise from contributions by investors. So, ROA gives an idea as to how efficiently management
use company assets to generate profit, but is usually of less interest to shareholders than some
other financial ratios such as ROE. Return on assets gives an indication of the capital intensity
of the company, which will depend on the industry. Capital-intensive industries (such as railroads
and thermal power plant) will yield a low return on assets, since they must possess such valuable
assets to do business. Shoestring operations (such as software companies and personal services
firms) will have a high ROA: their required assets are minimal. The number will vary widely
across different industries. This is why, when using ROA as a comparative measure, it is best to
compare it against a company's previous ROA figures or the ROA of a similar company.
4.
Financial Leverage Ratio

4.1
Total Debt Equity Ratio
Total Debt Equity
=
2009
= 1997.3/7098.9
= 0.281
2008
= 1872.10/7293.30
= 0.257
2007
= 1716.2/6946.80
= 0.247
2006
= 2442.2/8312.80
= 0.294
2005
= 2970.7/8830.9
= 0.336
Total Liabilities / Total Equity & Liabilities
Page | 13

The debt-to-equity ratio (debt/equity ratio, D/E) is a financial ratio indicating the relative
proportion of entity's equity and debt used to finance an entity's assets. This ratio is also known
as financial leverage. Debt-to-equity ratio is the key financial ratio and is used as a standard for
judging a company's financial standing. It is also a measure of a company's ability to repay its
obligations. When examining the health of a company, it is critical to pay attention to the
debt/equity ratio. If the ratio is increasing, the company is being financed by creditors rather than
from its own financial sources which may be a dangerous trend. Lenders and investors usually
prefer low debt-to-equity ratios because their interests are better protected in the event of a
business decline. Thus, companies with high debt-to-equity ratios may not be able to attract
additional lending capital.
A high debt/equity ratio generally means that a company has been aggressive in financing its
growth with debt. This can result in volatile earnings as a result of the additional interest
expense. If a lot of debt is used to finance increased operations (high debt to equity), the
company could potentially generate more earnings than it would have without this outside
financing. If this were to increase earnings by a greater amount than the debt cost (interest), then
the shareholders benefit as more earnings are being spread among the same amount of
shareholders. However, the cost of this debt financing may outweigh the return that the
company generates on the debt through investment and business activities and become too much
for the company to handle. This can lead to bankruptcy, which would leave shareholders with
nothing. The debt/equity ratio also depends on the industry in which the company operates. For
example, capital-intensive industries such as auto manufacturing tend to have a debt/equity ratio
above 2, while personal computer companies have a debt/equity of under 0.5.
4.2
Leverage Ratio (Gearing Ratio)

Leverage Ratio
=
Total Liabilities / Total Equity
2009
= 1997.3/5101.6
= 0.392
Page | 14

2008
= 1872.10/5421.2
= 0.345
2007
= 1716.2/5230.6
= 0.328
2006
= 2442.2/5870.6
= 0.416
2005
= 2970.7/5860.2
= 0.507
Any ratio used to calculate the financial leverage of a company to get an idea of that
company's methods of financing or measure its ability to meet its financial obligations.
There are several ratios, but the main factors evaluated by a ratio include debt, equity,
assets, and interest expenses. A ratio used to measure a company's mix of operating costs
that yields an approximation of how changes in output will affect operating income. Fixed
costs and variable costs are the two types of operating costs; depending on the company
and the industry, the mix will differ.
Generally, companies with higher leverage as
determined by a leverage ratio are thought to be more risky because they have more
liabilities and less equity. A leverage ratio is also called a gearing ratio or an equity
multiplier. These leverage ratios are very important for the companys internal users as
well as external users. These ratios helps identify the weak areas of the company internally
and help the shareholders make a judgment about their investments. Companies with high
fixed costs, after reaching the breakeven point, see a greater increase in operating revenue
when output is increased compared with companies with high variable costs. The reason
for this is that the costs already have been incurred, and so every sale above breakeven
transfers to the operating income. In contrast, a company with high variable costs sees little
increase in operating income with additional output, because costs continue to rise as
outputs rise. The degree of operating leverage is the ratio used to calculate this mix and its
effects on operating income.
Question 2
What characteristics should a foreign partner have that will enable maximum synergies?
Page | 15

As we know, at the moment, PROTON do not has enough resources to stand by itself. This
means that it need other company to join or cooperate in order to produce the products. However,
it is important for the foreign partner to have several good characteristics or qualities in order to
ensure that the partnership or collaboration taken place will be successful and benefit to
PROTON.
Several characteristics that a foreign partner should have in order to enable PROTON maximize
its synergies are :
1.
Advance in technology / technology expertise

One of the major factor in order to ensure success in automotive industry are technology.
Technology plays a very important part in producing a good quality product because
consumer always aim the best technology. Technology in this world are rapidly changing
and of PROTON are unable to follow the technology flow, it might collapse because the
competition is very high.
Other automotive company are very efficient in advancing their technology. They always
moving forward and know the requirement of consumer and upgrade its products from
time to time. Company from country like Japan are well established. However, there are
other company that able to move forward and became the main competitor to the
company that are already stable such as Hyundai.
The foreign partner of PROTON should a company that is advance in technology so that
they can give a good example, information and consultation and the technology can be
adapted by PROTON for their benefit.
2.
Good marketing experience and effort

Besides technology, the foreign partner is also need to have a good marketing experience
and background. Marketing is very important because automotive industry are an
industry that can be distributed worldwide and a good marketing effort is very important
and needed.
Marketing is an effort that have to be done all the time. If the company are already well
known, marketing is still relevant in order to remind consumer about the existence of the
brand name because competition is always there to get consumers attention.
Page | 16

The foreign partner that PROTON are look into to have partnership or collaboration with
must have this characteristics to help PROTON maximize its sales.
3.
Able to adapt with local culture and norms

Different countries have different cultures and norms. However, cultures and norms is
something that should be respected by people from other country in which foreign people
should have respect on local culture and norms. Even though PROTON really need the
partnership and collaboration, this aspect cannot be regarded as it will affect the company
as a whole.
4.
Production efficiency
Production efficiency is very important to ensure quality and reduce costs of production
because the cost in producing automobile product are very high. Foreign partner should
be efficient in their production so that the overall costs can be reduced and the customer
satisfaction can be maximized.
5.
Financial investment
Last but not least, in order for PROTON to find partner, the partner must have a stable
financial position. With a strong financial position, they can help PROTON in term of
capital.
Question 3
What broad considerations should determine the parts of Proton that are worth keeping and
developing and the matter of operations to be relocated or closed down?
SWOT ANALYSIS :STRENGTHS
WEAKNESSES
Competitively priced products
Reputation
of poor product
performance
and
functionality
Low price in maintenance
High cost to expand their operation
Easy
access
to
service,
by advance technology
maintenance, repairs and obtain
Short history in automotive industry

spare parts because many service
centre available
Vulnerable to increasing material
Easy availability / stock because
cost example steel
produced in Malaysia
Cars are not fuel efficiency
Extensive nationwide distribution
Behind in technology because still
network
using timing belt which is
Page | 17

Good quality of certain parts such

as air-conditioning
Wide range of models
R&D As a company which
receive support from Government,
Proton have enough fund to do
R&D and always come with new
model
Good corporate governance
Influence of patriotism as Proton is
national car-maker
dangerous in term of safety

Do not produce compact cars and 4wheel drive such as Perodua Viva
and Ford Ranger
Dependability to foreign companies
in order to get their technology
Reduce profit in which has to pay
royalties when collaboration being
made
OPPORTUNITIES
THREATS
High demand on the products
Competitors
local
and
Malaysian always waiting when
international brands.
Proton are going to launch new
A lot of substitute products in
model because of price factor
market and new model with new
Government support
technology are changing rapidly
Malaysian products Attract many
Fast changing and advanced
Malaysian who patrionism in order
engineering technology
to support Malaysian products
Economic downturn which decrease
Opportunity to grow their business
of car sales
globally
Increase in oil prices which will
R&D Development
reduce demand
After-sales services
Reputation
of poor product
performance and functionality
Collaborations within automotive
because most Chinese dont buy
industry
Proton
STRENGTHS
PROTONs strength lies in its competitively priced product. It extensive nationwide
distribution network helps the industry to move forward with the support from Malaysian
government. The company also has good corporate governance, and highly regarded by
many Malaysians out of patriotism they feel for this country as PROTON is the national
car maker.
WEAKNESSES
Page | 18

Inexperience, apparently due to short history in car making certainly could not be an
excuse for PROTON to come out with low quality products. This could cost PROTON
very high as over time, it might jeopardize PROTONs reputation. Poor product
performance and functionality is something that cannot be allowed to happen and quality
always needs to be monitored and assured to the customers. Other than that, operational
cost and other expenses is always a challenge to any industry and for the case of
PROTON, it is more vulnerable to increasing raw material cost such as steel particularly.
OPPORTUNITIES
The demand for cars in any segment is always there, except for more trying times like
during economic crisis. There are always opportunities for PROTON to be a global
player. Nobody ever say that cars should only be manufactured by Japan, Germany and
other western countries though of course these countries have the reputation of making
good cars long before PROTON and Malaysia comes into the picture. Collaborations
within industry players could enable PROTON to do many things. Through research and
development more innovative products could be invented and ensure that PROTON as a
brand name remains in the industry.
THREATS
One of the threats is of course from the rivals, the competitors in the automotive industry.
Even Perusahaan Otomotif Kedua (PERODUA) Malaysian second national car maker,
set up after PROTON started to challenge PROTONs market share in Malaysia. Perodua
actually did better in recent year and outperformed PROTON via their most well selling
model so far, MyVi and grab more than 30% of overall market share. Under policy like
AFTA (ASEAN Free Trade Area) consumers can have more choices form HONDA,
Toyota, Chevrolet and others brand to be selected at a more affordable price, as Malaysia
now has cut duties on imports from other Southeast Asian countries to less than five
percent.
On the basis of a SWOT analysis above, PROTON is no need to close or move part of
PROTON as it is an icon for Malaysia to be proud of and will be a milestone in the
Page | 19

future. Apart from that also is allowing them to increase job opportunities in the field and
the most important automotive PROTON support from the government.
Question 4
From a review of 2009 National Automotive Policy, are there areas of possible collaboration
with Proton, short of a full merger/takeover?
1)
The Approved Prmit (AP) system extended to 2015

The AP system would be phased out in stages end in 2015. The AP holders would also be
audited twice yearly and those found uncompetitive would be removed from the list.
Initially slated to be abolished by end-2010 by the previous NAP in 2006, the system,
instead, was extended to 2015 by the Government.
2)
The excise duty structure remained status quo

The excise duty structure should be maintained so that the dumping of imported cars will
be status quo. This will result in improved growth of the national car in the market.
3)
The import duty structure maintained 0% for CKDs and 5% for CBUs under the
Asean Free Trade Agreement (AFTA)
Malaysian continues to non-compliance with the Common Effective Preferential Tax
(CEPT) Agreement where the import duties for the CUBs of Malaysia, Brunei, Indonesia,
the Philippines, Singapore and Thailand would be eliminated no later than 1 January
2010, which would make all cars exported from Malaysia less attractively priced. The
policy again was negative to all automotive manufacturers by impeding higher export
volumes and possibly deterring automotive manufacturers from setting up in Malaysia as
an ASEAN export hub, given that there was no timeline given to remove the structure.
4)
Full liberalisation of local assembled luxury passenger vehicles above 1,800cc with
on-the-road prices of above RM150K, effective 1 January 2010
Foreign firms could freely obtain a manufacturing licence and hold a 100% stake in a
company to assemble passenger vehicles provided they fulfilled certain conditions. The
current policy of contract assembly was maintained to encourage utilisation of existing
excess capacity. The policy benefited Proton, which focused primarily on the lower-end
market (the smaller vehicle segment) as the non-liberalisation of small vehicle segment
Page | 20

assemblers and/or manufacturers continued to protect the local incumbents. Moreover,

the policy was attractive for Proton as it provided means for it to employ its underutilised capacity (estimated volumes for the Tanjung Malim plant at 150,000 units per
year and the Shah Alam plant at 200,000 units per year were under-utilised at 50%) and
boost its revenue stream.
Proton must focus to produce vehicles above 1,800cc to fulfil demand of Malaysian
consumer.
5)
All imported used vehicles prices to be gazetted to prevent under-declaration

This was aimed to prevent manipulation of car prices. Only the pricelist of new imported
CBUs would be gazetted for the purpose of duty computation. A separate gazetted
pricelist for used CBUs would be issued to supplement the existing list of new CBUs to
prevent the under-declaration of grey imports by registering the vehicles as used
instead of new.
6)
The import of used parts and/or components to be prohibited and the gradual
phasing-out of imported used commercial vehicles to be effective from 1 June 2011
and 1 January 2016 respectively to promote safety and environmental concerns
The policy would be very costly for customers paying more for new auto parts when the
halfcuts would be banned.
7)
Incentives for manufacturers of critical and high value-added parts components

The high value-automotive-part manufacturers such as transmissions, brake systems,
airbags and steering systems would enjoy incentives such as 10-year 100% fiscal
deduction Pioneer Status (PS) or a 5-year 100% tax exempted Investment Tax Allowance
(ITA). Similarly, the investments made for the assembly or manufacture of hybrid and
electric vehicles would be granted the abovementioned incentives in addition to other
incentives such as customised trainings and research and development (R&D) grants.
Spilled-over from Incentive no. 6, this was a measure to promote the local long-term
development goal of becoming a regional R&D and manufacturing hub.
8)
A freeze on manufacturing licence for reconditioning and rebuilt activities will

continue
This policy was aimed to filter out possible malpractices with respect to the rebuilt
segment in the automotive industry.
Page | 21

9)
Roadworthiness Introduction of End-of-Life Vehicle (ELV) Policy

Under this policy, effective 1 January 2010, vehicles of 15 years and above (additional
provisions were to be made available for vintage cars) would have to undergo mandatory
inspection to qualify for road tax renewal, and those that fail roadworthiness would be
disposed. There were about 2.7 million passenger vehicles older than 10 years on the
road.
10)
Proton to establish a strategic partnership with global OEMs to enhance its global
competitiveness for long-term viability
Discussions surrounding Proton forming potential strategic partnerships with VW,
Renault SA and GM had long been ongoing in the market. Proton had been eyeing for a
strategic partnership to increase its technological prowess in exchange for a gateway to
the Asean region, an advanced R&D platform and ample production capacity. However,
the slow pace liberalisation of the automotive industry (e.g. a reluctance to abolish the AP
system and the non-compliance to CEPT Agreement) was making Malaysia less attractive
to the foreign automotive players as compared to the other regions like Thailand and
Indonesia for example, VW had already invested in an assembly plant in Indonesia,
which was expected to be operational by 2012.
Based from a review of 2009 National Automotive Policy, Proton should merge with other local
automotive to overcome and solve their problem. They can discuss and make a clear term and
conditions in an agreement about the best solution for both of them.
Question 5
What other information not included in the case could help consultant Saiful Alawi makes a
more meaningful recommendation? Why?
As a consultant, Chartered Accountant, Saiful Alawi have to prepared a Projected Budgeting to
review Proton and to recommend whether an investment and/or collaboration should be
considered.
There are a few information in this case are not included. These are:
1.
Current Market Situation
Page | 22

Economy
There were about 806 million cars and light trucks on the road in 2007, consuming over
260 billion US gallons (980,000,000 m3) of gasoline and diesel fuel yearly. The
automobile is a primary mode of transportation for many developed economies. The
Detroit branch of Boston Consulting Group predicts that, by 2014, one-third of world
demand will be in the four BRIC markets (Brazil, Russia, India and China). Other
potentially powerful automotive markets are Iran and Indonesia. Emerging auto markets
already buy more cars than established markets. According to a J.D. Power study,
emerging markets accounted for 51 percent of the global light-vehicle sales in 2010. The
study expects this trend to accelerate.
World motor vehicle production
Global production of motor vehicle (cars and commercial vehicles)
Year
Production
Change
1997
54,434,000
1998
52,987,000
-2.7%
1999
56,258,892
6.2%
2000
58,374,162
3.8%
2001
56,304,925
-3.5%
2002
58,994,318
4.8%
2003
60,663,225
2.8%
2004
64,496,220
6.3%
2005
66,482,439
3.1%
2006
69,222,975
4.1%
2007
73,266,061
5.8%
2008
70,520,493
-3.7%
Page | 23

2009
61,791,868
-12.4%
Top vehicle manufacturing groups by volume

The table below shows the world's largest motor vehicle manufacturing groups, along
with the marquis produced by each one. The table is ranked by 2010 end of year
production figures from the International Organization of Motor Vehicle Manufacturers
(OICA) for the parent group, and then alphabetically by marquee. Joint ventures are not
reflected in this table. Production figures of joint ventures are typically included in OICA
rankings, which can become a source of controversy.
Page | 24

Page | 25

2.
Item in Income Statement (internal information)

Income statement is a statement showing all the income and expenses in order to produce
a companys net profit and income attributable to shareholders. However, the income
statement of PROTON from year 2005 until 2009 does not show a lot of cost and
expenses incurred.
All the items below are items that should be included in the income statement but they
are not revealed in the income statement of Proton.
1. Cost of Sales
2. Other operating income
3. Distribution costs
4. Administrative expenses
5. Other operating expenses
6. Finance cost
7. Share of results associated companies
8. Share of results of jointly controlled entities
9. Research and Development Cost
10. Interest charges
The values of above items are very important to determine, influence and help Saiful
Alawi to make a reasonable, rationale and correct judgment.
For example cost of sales. Cost of sales is being used to determine ratio of inventory
turnover. Inventory turnover ratio is a ratio that measures a companys ability to sell its
products or convert its inventory into cash in a year. By knowing this ratio, Saiful Alawi
will know how efficient Proton in planning its production and sales to ensure that there is
a balance between them to avoid inventory that is kept too long.
3.
Research And Development (R&D)
Next is Research and Development Cost. PROTON has been given a huge amount of
allocation from Government to do research and development and they are always doing it
in order to improve the quality of their product. By right, amount of research and
Page | 26

development should be reported in the income statement. The value will help Saiful alawi
to decide whether or not PROTON has done a good research by comparing to the cost of
research and the result or outcome from the research.
Research and development is the way to change and a path to development. It increases
the efficiency in the organization by finding different efficient and effective means of
working. R&D is the source of information and it updated the organization data and
insists the organization to fell change in environment. it tell the organization about
changing in the preferences and taste of customers. R&D demonstrates the need of
consumers and customers for particular product.
Administrative expenses are also important to be revealed. This is because the amount
will determine how efficient PROTON in spending its administrative expenses. An
administrative expense is not an operating expense and does not determine by the
production.
Interest charges are amount of interest paid by company for loan being made whether
long term or short term. This amount is also need to be revealed to let Saiful Alawi know
whether PROTON has made a wise in making an outsource financing.
4.
SWOT Analysis of Proton and its competitor

SWOT Analysis is an analysis that consists of a companys strength, weakness,
opportunity and threat. The analysis will help company to discover their own strength and
weakness and opportunity and threat that they are facing from outside. It will also help
company to increase value of a company in all aspects from the capital financing to
production of products. This includes the quality of product, the effectiveness and
efficiency of each department, the skills and knowledge of their labour and so forth. By
knowing their own weaknesses, they are able to find solution to overcome the
Page | 27

weaknesses in order to minimize it so that a company can focus on expanding its

strength. Opportunity and threat is something that a company have to know in order to
expand and grow its business. To ensure the successful of a company in a long term, they
need to grow and expand. Same goes to PROTON. A 30 years is a long journey made by
PROTON whereby they has to know exactly the opportunity that is available for them to
take and the threat that they need to be aware.
This analysis should be revealed because from the analysis, Saiful Alawi will have a
broad mind of PROTON and also manage to decide the crossroads of PROTON in a long
run as well.
Besides SWOT Analysis of Proton, other information that should be included is lists of
its competitors and their SWOT Analysis. This information is very useful to Saiful Alawi
so that he manages to make a comparison and able to know where PROTON stand
compare to its competitors and discover weaknesses of PROTON better.
5.
PROTONs corporate information

In order for Saiful Alawi to evaluate PROTON, he needs the companys corporate
information. The corporate information includes:
1. Companys vision and mission
2. Internal and external environment of the company
3. Short term and long term objectives
4. Strategies-strategies that have been implemented by the company to achieve goals
6.
Review of the agreement and collaboration has been done by PROTON (doing
paperwork)
Since PROTON been established in 1983, there are many collaboration made by
PROTON with international company to produce new model.
7.
Customer Feedback
Page | 28

Customer feedback is vital to making a business work. The customers are the heart of
PROTONs operation; without them, it would be impossible to have any of the success
that the company does. Customer feedback can be an excellent way to keep the business
going in a positive direction.
Get Honest Opinions
Customer feedback is a vital way to get honest opinions on PROTONs services or
products from people who are familiar with them. These opinions can make it easier to
get into the minds of the most important critics.
Improve Relations
When customers feel that a business truly cares about them and what they think, they
may be more likely to be loyal customers. When a business makes changes according to
feedback, it shows that they truly listen and respect those opinions.
Inexpensive Business Advice
Some businesses pay thousands of dollars for someone to come in and tell them what
improvements need to be made to the business to get more customers. Customer feedback
is essentially inexpensive business advice directly from the source.
More Customers
When a business is willing to receive feedback and listen to it, word spreads and more
customers may be willing to give the company a shot based on your commitment to
excellent customer service.
Positive Changes
A business does not like to brag about the negative aspects of their operation; they want
to have mostly positive things to say. Customer feedback can mean positive changes
Page | 29

according to their comments, which could mean a better reputation and more money for
the business.
So, in this case, the information about the customer feedback is important because it
could help Saiful Alawi to identify the customer satisfaction about PROTONs product.
8.
Marketing
The heart of the business success lies in its marketing. Most aspects of your business
depend on successful marketing. The overall marketing umbrella covers advertising,
public relations, promotions and sales. Marketing is a process by which a product or
service is introduced and promoted to potential customers. Without marketing, the
business may offer the best products or services in your industry, but none of the potential
customers would know about it. Without marketing, sales may crash and companies may
have to close.
For example, PERODUA has joined a program Whats Up Graduate with a low
minimum monthly installment, 50% discount, free maintenance cost, insurance incentive
and free driving license.
9.
Production
The processes and methods used to transform tangible inputs (raw materials, semifinished goods, subassemblies) and intangible inputs (ideas, information, knowledge) into
goods or services. Resources are used in this process to create an output that is suitable
for use or has exchange value.
This information could help Saiful Alawi to know the extent to which the productions of
Proton meet the needs and preferences of customers.
Conclusion
Base on this case, our recommendations are:
Page | 30

1. Based on the financial analysis has been made, we can see that Proton are no longer able
to pursue the business by their own because of the low liquidation ratio and high leverage
ratios. Therefore, Proton may consider to make a collaboration with the local partners or
foreign partners.
2. Choosing the foreign partners is not easier as we can talk. Many thing and aspect that we
must consider before we make collaboration with the foreign partners like cultural issue
and adherence to the rules and regulation in this country.
3. SWOT analysis is very important to a company to understand their strengths and
weaknesses as well as to find out what are the opportunities that can be seized and the
threats to be avoided. Therefore, refer to this case, Proton can use that SWOT analysis
whether to make an investment or collaboration.
4. Misuse of power and fraud by high level of management should be addressed and
investigate either by major shareholders, Government bodies and create Proton
Commission to solve Proton problems in the future development
5. The production of above models usually comes from collaboration of Proton with foreign
partners. From example, collaboration with Mitsubishi produced Inspira while
collaboration with Renault SA produced Savvy. Proton also used foreign technology in
the production of cars such as Lotus. Recently, Proton also going to have collaboration
with Honda. In terms of marketing, steps have been taken to increase proton visibility in
foreign countries such as Egypt, Syria, Thailand, China and Indonesia.
6. Collaboration, Joint Venture or Short term partnersjip with local automotive such as
Perodua to be think deeply or provide an opportunity for the company to overcome the
problem of Proton. Below the SWOT Analysis of Perodua to be analysed or to be
considered as follows :SWOT Analysis Perodua
Strengths
1. Highly demand-although only a few
Weaknesses
1. Low R&D and not innovative-only few
Page | 31

model but it suits many people

2. Value for money-fuel efficiency and
price reasonable
models available and the same car only

upgraded-do not produce new model of
car
3. Low maintenance-every 10,000 km
2. Design not impressive
4. Have a good reputation
3. Weak management team
5. Excellent realibility and build quality
4. Dependability
plus the impressive standard equipment

specification
and
latest
to
Toyota
company
because using their technology
generation
technology apparent in models

6. According to the 80/20 rule, the prices
of
Perodua
cars
are
relatively
affordable to the 80% of the people.

7. Easy to drift for beginner
8. Suitable for single and couple
Opportunities
1. Opportunity to grow because meet the
demand people nowadays-fuel saving
and compact car
Threats
1. Economic slowdown
2. Competition
from
competitors
especially Proton
2. Opportunity to market globally

3. Opportunity to produce more products
due to goos reputation-people have
trust in new product
7. Changing existing engine technology to green technology from fuel to hybrid (electricity)
8. Creativity in technology innovation can be considered and asses by doing marketing
survey to the nationwide customers such as favourite colour, design, car capacity, car
quality, etc
9. Marketing strategy to be revised, improve and implement immediately to increase sales,
customer satisfaction, customer requirements etc
10. Comprehensive and acceptable in generate Budget Cash Flow and Financial Budgeting to
solve Proton financial situation and to create opportunity for future development
Page | 32

11. Full utilisation of factory space with mass production not produce only one type of car
but mixture type of cars in both factory either in Tanjung Malim or Shah Alam
Page | 33

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EPPA 4716

KAJIAN KES INTEGRASI

Nurul Amirah Mohd Noor

Siti Sarina Samat

Sandramathi A/P Raman

Kajian Kes Integrasi (EPPA 4716)

1. From a financial analysis perspective, has the Proton

management done a good job?

that are worth keeping and developing and the matter of

there areas of possible collaboration with Proton, short of a full

Kajian Kes Integrasi (EPPA 4716)

Kajian Kes Integrasi (EPPA 4716)

(Loss)/Profit before taxation

(Loss)/Profit after taxation

Dividend paid (sen)

Net assets (RM)

Retained earnings attributable to shareholders

Issued share capital ('000)

Prepaid land lease payments

Jointly controlled entities

Deferred tax assets

Total Non-Current Assets

Deposits, bank and cash balances

Total Current Assets

Kajian Kes Integrasi (EPPA 4716)

Non-current assets held for sale

Equity attributable to equity holders of the company

Total Current Liabilities

Total Equity and Liabilities

Total Non-Current Liabilities

Short term borrowings

Kajian Kes Integrasi (EPPA 4716)

Kajian Kes Integrasi (EPPA 4716)

Kajian Kes Integrasi (EPPA 4716)

Kajian Kes Integrasi (EPPA 4716)

Total Asset Turnover

Sales / Total Assets

Kajian Kes Integrasi (EPPA 4716)

Fixed Asset Turnover

Sales / Total Fixed Assets

= Profit (after tax) / Revenue

Kajian Kes Integrasi (EPPA 4716)

Return on Equity (ROE)

Kajian Kes Integrasi (EPPA 4716)

Return on Assets (ROA)

Kajian Kes Integrasi (EPPA 4716)

Financial Leverage Ratio

Total Liabilities / Total Equity & Liabilities

Kajian Kes Integrasi (EPPA 4716)

Leverage Ratio (Gearing Ratio)

Kajian Kes Integrasi (EPPA 4716)

Generally, companies with higher leverage as

Kajian Kes Integrasi (EPPA 4716)

Advance in technology / technology expertise

Good marketing experience and effort

Kajian Kes Integrasi (EPPA 4716)

Able to adapt with local culture and norms

Short history in automotive industry