Analysts positive on UMW’s proposal to take control of Perodua

KUALA LUMPUR (March 12): Analysts are positive on UMW Holdings Bhd’s proposal to take up a controlling stake in Perusahaan Otomobil Kedua Sdn Bhd (Perodua) by acquiring a 50.07% stake in MBM Resources Bhd (MBMR), saying it will enhance UMW’s position in the Malaysian automotive market.

In a note, Hong Leong Investment Bank Research (HLIB Research) analyst Daniel Wong said the move was in line with UMW’s restructuring exercises to focus on core businesses that include automotive and manufacturing segments.

“Furthermore, UMW will also leverage on MBMR’s interest in the automotive parts and components manufacturing segment (widen UMW’s own manufacturing segment), which include OMI group (wheel manufacturing) and Hirotako group (safety products and voice, vibration and harshness products),” Wong wrote.

MIDF Research analyst Hafriz Hezry said the offer of RM2.56 per share looks good for UMW, as it is a relatively cheap entry point at 17% discount to MIDF’s target price of MBMR, and just 13% premium to volume weighted average price (VWAP) of RM2.26.

Hafriz said the research house would have expected a larger premium on the offer price, given MBMR’s block in Perodua is swinging, allowing control of Perodua; scarcity premium to valuations as UMW becomes the only local proxy to Perodua and possible value accretion, as well as immediately earnings accretive for UMW.

“MBMR is already profitable as a group, with the bulk of earnings coming from its 22.6% associate stake in Perodua. Post-acquisitions, we estimate UMW’s earnings to expand 39%/28% over FY18F/FY19F on a full year basis and Perodua FY18F/19F contribution to UMW earnings will rise to 61%/51% from 46%/35% currently,” Hafriz wrote in his note.

“Earnings expansion from the acquisitions will more than offset any dilution from potential new share issuance to fund the acquisitions,” he added.

MIDF upgraded its call on UMW to a ‘non-consensus buy’ with an unchanged target price of RM6.70 per share.

Meanwhile, HLIB Research upgraded its call from ‘sell’ to ‘hold, with an increased target price of RM6.10 from RM5.20.

On Friday (March 9), UMW announced in a filing to Bursa Malaysia that it plans to take up a controlling stake in Perodua by acquiring a total of 50.07% stake in MBMR held by Med-Bumikar Mara Sdn Bhd (49.5%) and Central Shore Sdn Bhd (0.57%) for RM501.04 million cash or RM2.56 per share, following which it would undertake a mandatory takeover offer (MO) for the remaining MBMR shares.

Concurrently, UMW also plans to acquire another 10% of Perodua from PNB Equity Resources Corp Sdn Bhd (PERC).

UMW currently owns 38% of Perodua via UMW Corp Sdn Bhd, and should its proposed acquisition of the 50.07% stake in MBMR and mandatory offer succeed, its stake in Perodua would increase to 60.6%. It would further enlarge to 70.6% if the PERC stake, valued at RM417.5 million or RM29.80 per share, is also sealed.

At 10:45am, UMW shares were trading up 25 sen or 4.20% higher at RM6.20, after 300,000 shares exchanged hands.