Highlights

• After further deliberation, Med-Bumikar Mara has decided to reject the acquisition offer made by UMW Holdings Berhad.
• To recap, Med-Bumikar Mara received an offer from UMW Holdings to buy its 50.07% stake for a total cash consideration of RM501m or RM2.56/share.
• Based on the offer price of RM2.56 per share, MBMR is valued at FY18 P/E 10.5x, FY19 P/E 9.2x and P/B 0.7x.
• Nevertheless, UMWH has decided to extend the offer period from 28 March 2018 to 30 April 2018 and UMW will continue to engage Med-Bumikar Mara on the merits of the proposal.

Comments

• We are positive on major shareholder’s decision to reject the offer, as the offer of RM2.56/share is unattractive and lower than our existing target price of RM2.70/share and NTA of RM3.68 per share.
• We believe MBMR should be priced at a higher valuation, given MBMR’s 22.6% stake in Perodua, which has strong presence in Malaysia, commanding market share of 40.9% in 2018 YTD and 35.5% in 2017.
• We believe Med-Bumikar Mara will push for a more attractive offer price from UMW. UMW will have to weigh on the strengthening its automotive segment, consolidating Perodua contributions and potential synergies with MBMR group.

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.

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 - 27 Mar 2018