PROTON HOLDINGS BERHAD CONTENTS Page EXECUTIVE SUMMARY vi PART A LETTER FROM THE BOARD OF PROTON 1. INTRODUCTION 1 2. BOARD’S COMMENTS 2 3. DIRECTORS’ INTENTION FOR THE OFFER 3 4. DETAILS OF ACCEPTANCES 3 5. DIRECTORS’ DISCLOSURE OF INTEREST 3 6. DIRECTORS’ RESPONSIBILITY STATEMENT 3 7. DIRECTORS’ RECOMMENDATION 4 PART B INDEPENDENT ADVICE LETTER FROM AFFIN INVESTMENT 1. INTRODUCTION 6 2. LIMITATIONS TO THE EVALUATION OF THE OFFER 7 3. SALIENT TERMS AND CONDITIONS OF THE OFFER 9 4. DETAILS OF ACCEPTANCES 10 5. EVALUATION OF THE OFFER 10 6. FURTHER INFORMATION 53 7. CONCLUSION AND RECOMMENDATION 53 APPENDICES I INFORMATION ON PROTON 57 II INFORMATION ON DRB-HICOM 67 III FURTHER INFORMATION 88 v v EXECUTIVE SUMMARY OF THE OFFER (CONT’D) 3. EVALUATION OF THE OFFER In arriving at the recommendations in respect of the Offer, the Board (save for Dato’ Sri Haji Mohd Khamil bin Jamil) has taken into consideration the evaluation by AFFIN Investment. AFFIN Investment has assessed and evaluated the terms of the Offer as set out in Section 5, Part B of this IAC. In arriving at its opinion on the Offer, AFFIN Investment has taken into consideration the following pertinent factors: (i) the rationale for the Offer as elaborated in Section 5.1 of the IAL; (ii) the financial performance of the PROTON Group as elaborated in Section 5.2 of the IAL; (iii) the financial evaluation of the Offer as elaborated in Section 5.3 of the IAL; (iv) the listing status of PROTON and compulsory acquisition as elaborated in Section 5.4 of the IAL; (v) the Offeror’s future plans for the PROTON Group as elaborated in Section 5.5 of the IAL; (vi) the overview of the Malaysian economy and the prospects of the automotive industry in Malaysia as elaborated in Sections 5.6.1 and 5.6.2 of the IAL; and (vii) the future prospects of the PROTON Group as elaborated in Section 5.6.3 of the IAL. 4. RECOMMENDATION FROM THE INDEPENDENT ADVISER You should consider carefully, the quantitative and qualitative aspects of the Offer, including but not limited to the pertinent factors such as: (i) the Offeror’s future plans for the PROTON Group; (ii) the listing status of PROTON; and (iii) other considerations as set out in this IAC, the Offer Document and other publicly available information, prior to making a decision on whether to accept or reject the Offer. AFFIN Investment, being the Independent Adviser, has assessed and evaluated the quantitative and qualitative aspects of the Offer to arrive at the fairness and reasonableness of the Offer as contained in the IAL, based on the pertinent factors as set out in Section 5, Part B of the IAL and the evaluation is summarized as follows: Fairness of the Offer (i) Market prices of PROTON Shares AFFIN Investment noted that PROTON Shares had generally traded at a discount to the Offer Price for the past one (1) year up to the Last Trading Date. The Offer Price represents a premium ranging from 2.80% to 26.73% over the five (5)-day, one (1)-month and three (3)-month VWAMP of PROTON Shares up to and as at the Last Trading Date. vii vii EXECUTIVE SUMMARY OF THE OFFER (CONT’D) The Offer Price represents a premium ranging from 71.34% to 94.35% over the twelve (12)-month, six (6)-month, three (3)-month, one (1)-month, five (5)-day VWAMP and the last transacted price of PROTON Shares up to and as at the Event Date. In this regard, the Offer Price is fair when compared against the historical market prices of PROTON Shares during the period under review. (ii) Performance of PROTON Shares’ price against the FBMKLCI The price of PROTON Shares has generally recorded a lower return in terms of dividend income and share price appreciation for the Holders as compared to the FBMKLCI for the period from 13 January 2011 (being the date 1-year prior to the Last Trading Date) up to the Event Date. However, during the month of December 2011 up to the Last Trading Date, PROTON Shares’ price has recorded a higher return in terms of dividend and share price appreciation as compared to an investment made in the FBMKLCI for the said period. Notwithstanding the above which is due to the speculative interest in PROTON Shares arising from the news articles in November 2011 on a possible impending take-over of PROTON, we take note that based on the performance of the market prices of PROTON Shares against the FBMKLCI from 13 January 2011 (being the date 1-year prior to the Last Trading Date) up to the Event Date, an investment in PROTON Shares would have generated a higher loss in terms of dividend income and share price appreciation as compared to the losses from investing in FBMKLCI, which demonstrate that PROTON Shares have been generally underperforming vis- à-vis the FBMKLCI over the period under review. In this regard, Holders may consider accepting the Offer. (iii) Trading liquidity It is noted that the analysis of the historical trading volume and the percentage free float of PROTON Shares would suggest that PROTON Shares was at a simple average monthly volume of approximately 10.79 million PROTON Shares or 5.68% of the free float of PROTON Shares for the period commencing from December 2010 up to November 2011, being the month of the Event Date. However, from November 2011 up to January 2012, the trading volume of PROTON Shares per month has increased substantially which is believed to reflect the speculative interest by investors in PROTON Shares following the release of news articles by the media in November 2011 and December 2011 on a possible impending take-over of PROTON. (iv) PBR analysis Historically, the market has in the past one (1) year up to the Last Trading Date and Event Date valued PROTON Shares lower than the Offer Price based on the traded PBR. The Offer PBR of 0.56 times based on the NA per PROTON Share as at 31 March 2011 falls below the range of the PBR of the Comparable Companies of 0.78 times to 1.89 times and also falls below the average PBR of the Comparable Companies of 1.40 times. In this regard, PROTON is undervalued as compared to the Comparable Companies from the perspective of PBR analysis. However, we noted that PROTON has recorded a lower ROA and ROE for the FYE 31 March 2011 as compared to the Comparable Companies. (v) PER analysis Historically, the market has in the past one (1) year up to the Last Trading Date valued PROTON Shares higher than the Offer Price based on the traded PER. The Offer PER of 19.41 times based on the EPS of PROTON for the FYE 31 March 2011 is above the trailing PER range of the Comparable Companies of 6.84 times to 17.28 times and is also above the average PER of the Comparable Companies of 11.94 times. This indicates that the Offer Price is fair as compared to the average trading PER of the Comparable Companies. viii viii EXECUTIVE SUMMARY OF THE OFFER (CONT’D) (vi) PROTON’s dividend track record and Dividend Discount Analysis We noted that the dividend yield of PROTON for the FYE 31 March 2011 of 2.82% is lower than the dividend yield of the FBM100 Index of 3.35% over the past 12 months. Nevertheless, we take note that the average dividend yield of PROTON for the past three (3) years of 3.41% falls within the range of the Comparable Companies of between 2.70% to 3.95%. However, when compared to the prevailing fixed deposit rate offered by a Malaysian financial institution that is available to PROTON shareholders, it is not attractive for PROTON’s shareholders to retain PROTON Shares for dividend income purposes. Notwithstanding the illustration above, Holders should take note that PROTON’s dividend yield may not be directly comparable to the rate of return from a bank fixed deposit account due to the different risk profiles and the fact that there may be capital gains from any appreciation in the market price of PROTON Shares that may be derived by Holders. Further, the Offer Price of RM5.50 is above the implied equity value of RM4.94 per PROTON Share based on the Dividend Discount Analysis valuation model. Reasonableness of the Offer (i) Financial performance of the PROTON Group We noted the financial performance of the PROTON Group over the past five (5) financial years as highlighted in Section 5.2.1, Part B of the IAC. It is noted that it would be beneficial for the Holders to accept the Offer as the PROTON may be faced with external challenges in the future as set out in Section 5.6.3, Part B of the IAC as well as the risk of the PROTON Group’s plans not being able to fully address these challenges. (ii) Rationale of the Offer It is noted that given DRB-HICOM’s knowledge and experience in the automotive industry over the years, DRB-HICOM is expected to enhance PROTON’s system and procedures from its technical know-how in the automotive industry and its experience with other global automotive partners. In addition, the business synergies and opportunities for DRB-HICOM and PROTON can be expanded through the localisation and local vendor programmes. The intention of DRB-HICOM to safeguard the PROTON Group can be evidenced from the intention of its future plans as set out in Section 7 of the Offer Document.