Investment Highlights

• We maintain HOLD on UMW Holdings with an SOP-based FV of RM5.85/share. UMW said on Friday it has extended its offers for MBM and PERC by six months to end-October due to recent developments.

• UMW did not specify the nature of these developments, although media reports indicate that the major impediment is Daihatsu’s disagreement to having UMW as the single largest shareholder in Perodua.

• The Edge Weekly reported on the weekend that Daihatsu was adamant on this and even threatened to stop all technological transfer to Perodua. Daihatsu has a 20.93% stake in Perodua (comprising a direct stake of 20%, and indirect stake of 0.93% via its 18.5%-held Daihatsu (Malaysia) Sdn Bhd).

• The worst case scenario for UMW is to be saddled with MBM’s lackluster operations and not own the 22.58% Perodua stake held by MBM (capping its ownership at 48% instead of the 70.6% eyed from the completion of both deals). This would be the implied result from Daihatsu’s decision, given that the transfer of the 20% stake from MBM to a new party requires the approval of other Perodua shareholders.

• We believe UMW’s unusually long extension stems from the group wanting the confirmation that the acquisition of MBM would lead to owning a controlling stake in Perodua.

• News reports say Med-Bumikar is poised to vote in favour of the UMW proposal in its EGM today: The Edge reported that 52% of Med-Bumikar (comprising MARA, along with the Looi and Wong families) are supportive of the deal.

• Following a nod by Med-Bumikar, we understand that the 6 months (compared to 3 months stipulated by UMW in its initial proposal) will be for UMW to win support most crucially from MBM’s minority shareholders and Daihatsu with the latter as the priority.

• We believe UMW would need to state how it can improve things for Perodua with a controlling stake. The status quo in Perodua’s shareholding arrangement has proven to be positive: it won a 36% market share in 2017, on a revenue of RM9.3bil and operating profit of RM440mil. This could partly be from the autonomy it enjoys from not having a single controlling shareholder.

• We maintain our projections and FV given the growing uncertainty on this. The extension on both proposals to a single deadline for the second time indicates that the end goal is to own a controlling stake in Perodua, although the two proposals are not conditional to each other.

Source: AmInvest Research - 30 Apr 2018