Investment Highlights

• We maintain HOLD on UMW Holdings with an SOP-based FV of RM5.85/share.

• The media reported that Med-Bumikar had voted in favour of UMW’s takeover offer at RM2.56/MBM share. The Edge Financial Daily highlighted that the 52% block that swayed yes insisted that the result was valid given that quorum was present when the EGM began, as the dissenting shareholders only left mid-way through.

• MARA, which lead the group voting yes and holds the largest block in Med-Bumikar with 33%, said it sought a task force committee to negotiate with UMW. MARA said its decision was based on the “strategic benefits” to be gained for the entity and the nation, indicating that it prioritized on other factors ahead of the offer price.

• While there is some speculation that Med-Bumikar could push for a higher offer price via the task force committee, we believe the result of the EGM effectively signals agreement to the RM2.56/share offered by UMW.

• We note that the potential ambiguity here and the public divide among Med-Bumikar shareholders on the UMW offer could catalyze the minority shareholders of MBM to push for a better offer.

• We believe it would be in UMW’s interest to own all of MBM. While it would gain the controlling stake in Perodua with both outcomes (it would raise its stake in Perodua to 38% to 70.6% if the plans to acquire MBM and the Perodua stake from PERC succeed, or to 59.3% if it only takes up the MedBumikar stake in MBM and the Perodua stake from PERC), it would not have complete autonomy to execute some plans it has to improve MBM (i.e. sell the non-Perodua distribution businesses).

• We hold our projections given the long gestation period to the completion of this deal. Recall that UMW had bought itself 6 months to end-October. We believe the group will seek confirmation acquiring MBM will lead to owning a controlling stake in Perodua, most crucially by winning Daihatsu’s support.

• Should the deal fail to materialize, we believe it would be negative for UMW and MBM. For UMW, it would have missed the opportunity to take up additional shares in Perodua at a low price. For MBM, we believe it would have been managed by a proactive owner which in this instance, intends to dismantle the group and divest the least valuable parts.

Source: AmInvest Research - 2 May 2018