UMW may explore a cash call to fund MBM, Perodua deals


UMW Holdings may need to pay about RM1.12bil in cash and issue 49.3 million new shares at RM6.09 a share to privatise MBM and acquire the additional 10% stake in Perodua from PNB Equity Resources.

KUALA LUMPUR: UMW Holdings may need to pay about RM1.12bil in cash and issue 49.3 million new shares at RM6.09 a share to privatise MBM and acquire the additional 10% stake in Perodua from PNB Equity Resources (PNBER).  

CIMB Equities Research said on Monday UMW plans to acquire Med-Bumikar’s entire 50.07% stake in MBM Resources (RM2.20, not rated) for a cash offer of RM2.56 a share or RM501mil. 

MBM is involved in the distribution and dealership of major international and local brands in Malaysia, such as Perodua, Daihatsu, Hino, Mitsubishi, Volkswagen and Volvo. 

It pointed out that if the offer is accepted, a mandatory offer will be triggered that will require UMW to acquire the remaining shares in MBM.

UMW intends to delist MBM from the main market if it manages to acquire the remaining shares.

“Essentially, UMW may need to spend RM1bil for a 100% stake in MBM, which values the company at an implied FY18F P/E of 10 times. 

“UMW is also acquiring an additional 10% stake in Perodua from PNBER for RM417.5mil, valuing Perodua at RM4.175bil. 

“The deal is expected to be completed via the issuance of 49.3 million UMW shares at an issue price of RM6.09 a  share and cash of RM117.5mil,” it said. 

CIMB Research said that after the acquisitions, UMW’s stake in Perodua will effectively rise from 38% to 70.6%. 

The group is still working on its funding structure and it does not rule out the combination of equity fund-raising, bank borrowings and internal funds to finance the deal. 

Based on the latest financials in FY17 excluding Perodua, UMW and MBM have a combined net debt position of RM1.7bn and net gearing of 37%. 

“Based on our estimate, UMW’s FY18-20F EPS could increase by 16%-20% if the group decides to raise the RM1.12bil cash for the deal through bank borrowings but its net gearing will also increase from 37% to 62%.  

“Nevertheless, we believe the group could explore a cash call to finance the deal in order to mitigate the impact from higher finance cost. 

“Based on our estimate, UMW’s FY18-20F net profit will increase by 23-28% if the group decides the raise the cash entirely through a rights issue. 

“However, we estimate its FY18-20F EPS will only go up by 3%% given the 20% dilution impact from the estimated additional 232 m new shares issued at RM6.09 a share.   

“We are positive on the proposed acquisition as this will allow UMW to solidify its position as the leading automotive manufacturer in Malaysia and see immediate earnings contribution from Perodua. 

“In addition, the acquisition will allow UMW to expand into the auto parts manufacturing business, namely wheels, safety products and noise, vibration and harshness products. 

“Overall, we expect pretax profit contribution from the auto division to rise from 76% in FY17 to over 80% in FY18F,” it said.  

CIMB Research said it made no changes to its earnings forecasts pending the finalisation of the funding structure and shareholder approvals on the deal. 

“Maintain Hold and our RM6.70 target price, still based on 14 times CY19F P/E, a 10% premium over its FY09-14 historical mean of 13 times,” it said.

 

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