Highlights

• MBMR announced its major shareholder Med-Bumikar Mara has received a letter of offer from UMW Holdings Berhad to acquire 50.07% stakes in MBMR.
• The offer price is equivalent to RM2.56 per share (16.4% premium over the last transacted price of RM2.20) amounted to a total cash offer of approximately RM501.0m.
• Post-acquisition of the 50.07% stake in MBMR, UMWH will have to offer mandatory takeover offer (MO) for the balance of the 49.93% in MBMR. Subject to the successful acquisitions and MO, UMWH will have 70.6% stake in Perodua (48% directly and 22.6% via MBMR).
• The offer price of RM2.56 per share is valued at FY18 PE 10.5x, FY19 PE 9.2x and PB 0.7x.

Comments

• The proposed acquisition offer came as a surprise to us as we were not expecting any such announcement in the near term.
• However, we are negative on the exercise, as the offer of RM2.56/share is lower than our existing target price of RM2.70/share, a 20% discount to our estimated SOP of RM3.38/share.
• We opine that minority shareholders should not accept the expected upcoming MO made by UMWH (post acceptance by major shareholder for the 50.07% stake) as the offered price is unattractive.
• Recall that MBMR made core net profit of RM96.7m, after excluding the impairment adjustments amounting to RM257.7m.
• MBMR’s earnings and cashflow are expected to be continue supported by strong associate and JV contributions i.e. Perodua and Hirotako. The loss from alloy wheel plant has moderated and expected to be contained and gradually subside within the next few years.

Risks

• Prolonged tightening of banks’ HP rules.
• Slowdown in the Malaysian economy affecting car sales.
• RM depreciation.
• Unsuccessful turnaround of OMI.
• Increase cost of input materials.

Forecasts

• Unchanged pending completion of the deals.

Rating

BUY (↔)

• MBMR is expected to leverage on sustainable sales of Perodua in Malaysia (as well as opportunity for export market). Perodua has invested into major manufacturing facilities for engine (with Daihatsu) and transmission (with Akashi Kikai and Daihatsu) to improve its cost structures and support its long-term growth. Furthermore, OMI has started to show positive signs of turnaround in 2Q17.

Valuation

• Maintain BUY on MBMR with unchanged TP of RM2.70, based on 20% discount to SOP.

Source: Hong Leong Investment Bank Research - 12 Mar 2018