UMW shares take a tumble on cash call announcement

PETALING JAYA: Shares of diversified conglomerate UMW Holdings Bhd tumbled 59 sen or 9% to RM5.90 yesterday after the Main Market company announced a cash call to part-finance the purchase of car maker Perodua.

Analysts expect the rights issue exercise, which could raise up to RM1.1bil cash, to be earnings per share (EPS) accretive for UMW, despite the dilution impact from the additional new shares.

Proceeds raised from the rights issue will be used to finance the recently proposed acquisition of 50.07% stake in MBM Resources as well as the mandatory general offer, if the acquisition materialises.

The purchase of remaining MBM Resources shares will be satisfied by either cash or issuance of new UMW shares.

In its published note, Kenanga Research said UMW’s EPS in the financial year 2019 (FY19) will improve following the cash call exercise.

“On a full-year contribution basis in FY19, we expect EPS accretion of 11% (full cash scenario) and 14% (full shares scenario) respectively, despite the rights issue for both scenarios. However, due to the sixmonth contribution in FY18 from MBM Resources and 10% Perodua, we will see EPS dilution of -5% (full cash scenario) and - 3% (full shares scenario) for both scenarios.

“We keep our FY18/FY19 earnings estimates and target price unchanged until the completion of the proposed acquisition and pending further announcements,” said the research house.

Meanwhile, MIDF Research said the exercise will be less dilutive to UMW in a full shares scenario.

It also said that the exercise is expected to be earnings-accretive.

“Nonetheless, earning expansion from the acquisitions will more than offset any dilution from potential new share issuance to fund the acquisitions. Our sensitivity analysis suggests in a worst case, full cash payment scenario, UMW still attains earnings accretion of 4% in FY19, whereas in a best case, full shares scenario, net earnings accretion rises to 6% in FY19F,” it said.

On March 9, UMW offered to buy all the ordinary shares in MBM Resources held by Med-Bumikar Mara Sdn Bhd and Central Shore Sdn Bhd, a wholly owned subsidiary of Med-Bumikar, collectively representing a 50.07% interest in MBM Resources for RM501mil, or RM2.56 apiece.

Currently, MBM Resources holds a 22.58% effective equity interest in Perodua.

If UMW’s proposal is accepted, then its shareholding will rise from nil to 50.07% in MBM Resources, and UMW will be obliged to extend a mandatory general offer for the rest of MBM Resources’ minority shareholders.

Separately, UMW has also proposed to additionally acquire 14 million ordinary shares, or 10%, in Perodua held by PNB Equity Resource Corp Sdn Bhd (PERC), at a price of RM417.5mil, or RM29.80 a share. PERC is the private equity investment arm of PNB.