Analysts positive on UMW’s increased stake in MBMR
KUCHING: UMW Holdings Bhd’s ( UMW) proposed 50.07 per cent stake acquisition in MBM Resources Bhd ( MBMR) has been viewed by analysts as a surprising move but they view the development as a positive move by UMW but a negative development for MBMR.
The proposed acquisition offer came as a surprise to the research arm of Hong Leong Investment Bank Bhd ( HLIB Research) as it was not expecting any such announcement in the near term.
“However, we are negative on the exercise (for MBMR), as the offer of RM2.56 per share is lower than our existing target price of RM2.70 per share, a 20 per cent discount to our estimated sum of parts (SOP) of RM3.38 per share,” HLIB Research said in a MBMR report.
The research arm opined that minority shareholders should not accept the expected upcoming mandatory takeover offer ( MO) made by UMW (post acceptance by major shareholder for the 50.07 per cent stake) as the offered price is unattractive.
It recalled that MBMR made core net profit of RM96.7 million, after excluding the impairment adjustments amounting to RM257.7 million.
“MBMR’s earnings and cashflow are expected to be continue supported by strong associate and joint venture (JV) contributions from Perodua and Hirotako.
“The loss from alloy wheel plant has moderated and expected to be contained and gradually subside within the next few years.”
However, for UMW, HLIB Research was positive on the proposal as it will enhance the group’s leading position in the Malaysia automotive market.
This would be in line with UMW’s restructuring exercises to focus on core businesses that include automotive and manufacturing segments.
“UMW will further enhance its relationship with Toyota group which include Lexus, Toyota, Daihatsu and Hino,”the research arm said.
“Furthermore UMW will also leverage on MBMR’s interest in 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).”
It added that there are potential synergies to be extracted from the consolidation of both UMW and MBMR group.
As such, HLIB Research viewed the acquisition of RM2.56 per share for the 50.07 per cent stakes in MBMR as value accretive for UMW.
This translated into 2018 price earnings ( PE) 10.5- fold, 2019 PE 9.2- fold and price- to- book ratio ( PB) 0.7-fold (end 2017) as compared to UMW’s own valuation of 2018 PE 21.7-fold, 2019 PE 15.5-fold and PB 2.3-fold (end 2017).
“Similarly, the pricing for 10 per cent stake in Perodua is also value accretive for UMW, at estimated 2018 PE 9.2-fold, 2019 PE nine-fold and PB one-fold (end 2017).”