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CIMB Research retains Hold for UMW, TP of RM6.70


KUALA LUMPUR: CIMB Equities Research is retaining its Hold and its RM6.70 target price for UMW Holdings, still based on 14 times CY19F price-to-earnings (P/E), which is a 10% premium over its FY09 to FY14 historical mean of 13 times.

It said on Wednesday UMW is proposing a rights issue to finance the potential acquisition of MBM Resources (RM2.45, Not Rated). 

To recap, UMW is proposing to acquire Med-Bumikar’s entire 50.07% stake in MBM for a cash offer of RM2.56 a share or RM501mil. 

If the offer is accepted, UMW will be obliged to undertake a mandatory general offer (GO) for the remaining shares in MBM at the same offer price. 

The consideration for the remaining shares in MBM will be satisfied either via cash consideration or issuance of new UMW shares at an issue price of RM6.09 a share, based on exchange ratio of 21 new UMW shares for every 50 remaining MBM shares. 

Under the full cash consideration, UMW will need to raise up to RM1.1bn to satisfy the funding for a 100% stake in MBM, working capital for the enlarged UMW group post completion and estimated expenses related to the proposals. 

Under the full shares scenario, UMW will need to raise a lower amount of RM559mil, since the remaining MBM shareholders will swap their shares for UMW new shares.  

“UMW indicated that the RM117.5mil cash portion of the proposed acquisition for a 10% stake in Perodua from PNB Equity Resources will be satisfied via internal funds. 

“But, it is important to highlight that the rights issue will only go through if the proposed MBM acquisition is completed and the GO is implemented. If all the necessary approvals are obtained, management expects the proposed rights issues to be completed by 3Q18,” it said.

CIMB Research said under the full cash scenario, the entitlement basis would be one rights for every five UMW shares, at RM4.40 for each rights share. 

Accordingly, the exercise will result in the issuance of 244 million rights shares and gross proceeds of approximately RM1.071bil. 

Under the full shares scenario, the entitlement basis would be one rights for every 10 UMW shares, at RM4.30 for each rights share. 

Accordingly, this would result in the issuance of 130m rights shares and gross proceeds of approximately RM559mil.

“Based on full cash scenario, we estimate UMW’s FY18-20F EPS will grow marginally by 1%-2% due to 25% dilution impact from the issuance of 292 million new UMW shares. 

“Based on full shares scenario, UMW’s FY18-20F EPS will grow slightly higher by 3%-5% due to 22% dilution impact from the issuance of 212 million new UMW shares,” it said.
 

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