UMW shares hit four-year high after Sime Darby makes takeover bid

Saturday 27 Apr 2024

KUALA LUMPUR (Aug 25): UMW Holdings Bhd's share price reached its highest level since 2019 following Sime Darby Bhd's offer to buy out Permodalan Nasional Bhd's (PNB) stake in the company at RM3.57 billion or RM5 per share in the country's largest automotive deal.

UMW was one of the top gainers, rising as much as 5.63% or 26 sen to RM4.88. At the time of writing, it pared some gains to settle at RM4.75, still up 13 sen or 2.81%, valuing the company at RM5.54 billion.

Meanwhile, Sime Darby rose 14 sen or 6.64% to RM2.25, its highest since its March 3 closing price of RM2.26, before retreating to RM2.19, eight sen or 3.79% above its Thursday closing price of RM2.11. At the time of writing, its market capitalisation was RM14.86 billion.

Additionally, analysts on Friday (Aug 25) said minority shareholders should accept the offer should the deal become unconditional, and a mandatory general offer (MGO) is launched by Sime Darby to buy the remaining shareholding of 38.82% and take UMW private. The MGO is expected to cost roughly RM2.27 billion, Sime Darby said in a Bursa Malaysia filing.

The analysts, citing the offer as decent in comparison to their fair values, also believe it presents a timely opportunity for minority shareholders to exit at the peak of the automotive demand cycle.

MIDF Research, in note on Friday (Aug 25), deemed the offer price fair, as it is at a 9% premium of its sum of parts-derived fair value of RM4.60 per share.

It noted that the offer values UMW at 13.3 times financial year 2024 (FY2024) price-to-earnings ratio, which is at a slight premium to UMW’s five-year historical mean of 12.9 times and at 1.3 times FY2023’s book value.

MIDF believed UMW has had a good run since the trough of the auto demand cycle back in 2000.

“CY2023 (calendar year 2023) is expected to see TIV (total industry volume) hit another record high of 725,000 (based on MAA’s [Malaysian Automotive Association] forecast) for the second year running, mainly driven by Perodua.

“We see this buyout offer as good opportunity for UMW’s minorities to exit at peak auto demand cycle,” it said, adding that based on the assumption that the deal proceeds to an MGO, it recommend investors to take Sime Darby’s buyout offer.

Meanwhile, Kenanga Research said the deal offers shareholders a chance to exit UMW as the major shift towards the electric vehicle (EV) space could spark a price war which could affect its margin in the longer term, taking note from China's current challenging operating environment.

“Furthermore, UMW Toyota and Perodua do not have affordable EV offerings to challenge the influx of China EV cars as well as the EV leader, Tesla. Hence, we recommend shareholders to take up the offer,” it added.

It rationalised its call to “accept offer” from “outperform”, noting UMW’s strong earnings visibility at its automotive business backed by order backlogs of over 240,000 units of vehicles, and the company being a reopening play, given the pick-up seen in its heavy and industrial equipment business and manufacturing of aero-engine fan cases.

It noted that risks include failure of the proposed privatisation of UMW which could spark selldown in its share price, consumers cutting back on discretionary spending amid high inflation, supply chain disruptions, escalating input costs, and a global recession hurting demand for industrial/heavy equipment.

Meanwhile, Hong Leong Investment Bank (HLIB) Research in a note on Friday said it is overall positive with the acquisition offer and advised minority shareholders to accept the offer.

HLIB maintained its "hold" call on UMW with a higher target price of RM5.00 (from RM3.85), based on Sime Darby’s offer price.

To recap, Sime Darby has entered into a conditional share purchase agreement (SPA) to acquire PNB’s 61.2% stake in UMW for RM5 per share, or a total of RM3.57 billion in cash. The deal is conditional on Sime Darby’s shareholder approval, consent from the respective brand principals (including UMW’s brand principals) and consent of relevant governmental authorities in relation to the change of control of UMW.

Upon completion of the SPA, Sime Darby will be obligated to extend an MGO at the same cash offer price of RM5 per share (or a total of RM2.27 billion) to minority shareholders of UMW, and it intends to delist UMW thereafter. Sime Darby expects the acquisition of PNB’s stake in UMW to be completed by the fourth quarter of 2023 (4Q2023) followed by completion of the MGO in 1Q2024.

Edited ByLam Jian Wyn

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