This article first appeared in The Edge Malaysia Weekly on March 12, 2018 - March 18, 2018

THERE is a certain buzz, an air of excitement, at Naza Tower in the heart of Kuala Lumpur. A similar mood pervades Naza Automotive Manufacturing Sdn Bhd (NAM) in Gurun, Kedah.

Much of the sentiment can be attributed to the announcement last week that France’s Groupe PSA was buying a 56% stake in NAM. While the consideration was not disclosed, market talk puts it as around RM400 million.

“It’s a big achievement … it’s a good way to start the year,” says SM Nasarudin SM Nasimuddin, executive chairman of the Naza group of companies.

“People don’t realise it [but] it’s going to be very, very huge,” he says of the tie-up with Groupe PSA.

His excitement is understandable. Groupe PSA is the second largest car manufacturer in Europe and has under its belt marques such as Peugeot, Citroën, Opel, Vauxhall and DS Automobiles.

In a nutshell, what the acquisition entails is for Groupe PSA and Naza to jointly assemble vehicles for the Asean market, and could eventually lead to Naza moving into the manufacturing of automotive parts.

With NAM producing larger volumes, the economies of scale should improve and drive costs down, which, in turn, could mean more sales and fatter profit margins.

“This year, we are looking at [selling] 3,600 units, double what we did last year ... 20% growth for the next two years in a row,” Nasarudin says in an exclusive interview with The Edge.

It’s not just the sales of Peugeot that are expected to strengthen, but Citroën and DS as well. There is also the potential of Opel and Vauxhall.

“But we just need to concentrate on three models (Peugeot, Citroën and DS). There is a whole new range of products coming out, especially Citroën, [which] is going through a phase where it is refreshing all its products, so it’s just about us repositioning each brand … I think within the PSA group’s brands alone, we should be able to do much, much better. Our immediate target is to come back to 6,500 Peugeot sales like a few years ago,” he says.

Naza sold 6,500 Peugeot vehicles in 2012 but the numbers have since dwindled. Last year, 1,924 Peugeots were sold, up 12.5% from 1,710 units in 2016.

As much as 85% of Peugeot sales in Asean come from Malaysia, which may explain why Groupe PSA is buying into NAM.

The French car maker, it seems, has set a target of RM700 million worth of exports by next year for NAM. Currently, there are no exports.

Thus, NAM’s bottom line is likely to get a jolt as well.

For its financial year ended December 2016, NAM chalked up an after-tax profit of RM6.17 million from RM46.22 million in sales.

As at end-December last year, the group had current assets of RM674.58 million and non-current assets of RM102.16 million. On the other side of the balance sheet, it had current liabilities of RM109.52 million and no long-term debt commitments.

To put things in perspective, NAM had retained earnings of RM593.22 million.

Nasarudin sums it up: “It’s profitable … but not much.”

However, in two years, there will be a significant impact on NAM’s bottom line from the acquisition by Groupe PSA, he says. Plans are already being drawn up to expand the existing facility in Gurun.

This year, Nasarudin expects NAM to assemble about 15,000 cars and in a couple of years, expand to 30,000 units. Coupled with the export target of 20,000 units, it means that NAM will be running at full capacity.

“So we have to expand. We are already in talks with Kedah [state government] on expansion plans. We have an immediate 35 acres if required. The spillover effects are huge ... this is just over the next two to three years,” he says.

Apart from the assembly plant, NAM’s sprawling 140-acre facility has a two-storey office, a test track, lots for vendors and suppliers and accommodation and recreation facilities for up to 1,000 employees.

The grand plan involves Naza group emulating its partnership with Groupe PSA with other partners as well. South Korea’s Kia Motor Corp is another mass market car company Naza has a tie-up with.

A total of 4,131 Kia cars were sold last year, more than double that of Peugeot. Apart from these two marques and Citroën, the other brands under the group are not for the mass market.

It also distributes Ferrari, Maserati and Koenigsegg super cars, and is the sole franchise holder in Malaysia for Brabus. It is one of three authorised Mercedes-Benz dealers, the sole importer for Mercedes-Benz Malaysia CBU (completely built-up) vehicles, and a reconditioned car player as well.

The Naza group forked out RM700 million to set up the automotive assembly plant in 2004. Now, 14 years later, it seems likely to bear fruit.

Interestingly, Groupe PSA was pipped by China’s Zhejiang Geely Holding Group Co in a two-horse race to buy into national car maker Proton Holdings Bhd in the middle of last year.

Geely acquired a 49.99% stake in Proton and a 51% stake in sports car brand Lotus in a deal worth RM1 billion. For Proton, Geely forked out RM460 million — RM170 million in cash and the remaining RM290 million in the form of a transfer of the former’s sports utility vehicle platform Boyue. For the Lotus stake, Geely paid £100 million (RM540 million). The remaining 49% of Lotus was to be acquired by Etika Automobile Sdn Bhd, a private company linked to businessman Tan Sri Syed Mokhtar Albukhary, who controls DRB-Hicom Bhd, which still has a 50.01% stake in Proton.

It is no secret that Proton’s new CEO Li Chunrong is not finding it easy dealing with with Proton’s vendors and dealers. The situation is likely to worsen after the general election.

In hindsight, it seems that Groupe PSA was fortunate to have missed out on Proton, and ended up with NAM.

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