UMW’s proposed acquisition of MBM, earnings accretive
KUCHING: UMW Holdings Bhd’s ( UMW) proposed acquisition of MBM Resources Bhd (MBM) will be earnings accretive for the group provided the valuation gap between acquirer versus acquiree remains, analysts say.
Following UMW’s briefing, the research arm of MIDF Amanah Investment Bank Bhd ( MIDF Research) highlighted that despite embarking on a fully new sharefunded acquisition, earnings expansion from the acquisitions will more than offset any dilution from potential new share issuance to fund the acquisitions.
MIDF Research’s sensitivity analysis suggested in a worst case, full cash payment scenario, UMW would still attain earnings accretion of four per cent in financial year 2019 forecast (FY19F), whereas in a best case full shares scenario, net earnings accretion would rise to six per cent in FY19F.
The research arm noted that this situation was possible given the large deviation in valuation gap between UMW at 14- fold FY19F price earnings (PE) versus the offer for MBM at just eight-fold FY19F PE.
“However, if UMW has to offer a significantly higher price for MBM, a fully new share-funded acquisition of MBM may not be earnings accretive anymore, in our opinion, given the narrower valuation gap between the acquirer versus acquiree.
“This is unless the discount given for its rights issue is also reduced in tandem, or otherwise, UMW would have to resort to part debt-funding for the acquisition,” the research arm said.
According to MIDF Research, UMW’s bankers argue that it is actually valuing MBM’s nonPerodua businesses at RM57 million equity value ( EV) of RM148 million.
This compared to the research arm’s valuation of MBM’s nonPerodua businesses at RM115 million.
“Regardless, even at UMW’s banker’s valuation, the implied valuation for UMW’s 22.6 per cent stake in Perodua is around 8.5fold forward FY19F PE, and gives UMW an effective six per cent dividend yield (FY19F) assuming Perodua maintains a 50 per cent payout.”
Meanwhile, on a full- year contribution basis in FY19, the research arm of Kenanga Investment Bank Bhd (Kenanga Research) expected earnings per share (EPS) accretion of 11 per cent (full-cash scenario) and 14 per cent (full-shares scenario), respectively, despite the rights issue for both scenarios.