KEY INVESTMENT HIGHLIGHTS

• UEM Sunrise proposed merger with Eco World in share swap

• Details on the proposed merger

• Enlarged entity with stronger financial muscles

• Earnings estimates maintained

• Maintain BUY with an unchanged TP of RM0.68

UEM Sunrise proposed merger with Eco World in share swap. Eco World Development Group (ECOWLD) announced that it has received a letter from UEM Group Berhad for the proposed merger of UEM Sunrise and ECOWLD. The proposed merger will be carried out via an exchange of shares and warrants. Upon completion of the proposed merger, ECOWLD will become a wholly-owned subsidiary of UEM Sunrise and subsequently delisted from Bursa Malaysia.

Details on the proposed merger. The proposed merger shall be carried out fully by way of securities exchange without any cash payment. Under the deal, ECOWLD shareholders will receive new shares in UEM Sunrise at an issue price of RM0.443 in exchange for ECOWLD shares held at an exchange price of RM0.469. This will result in an exchange ratio of approximately 1.059 new UEM Sunrise shares for every one ECOWLD share held. We think the valuation is fair to both parties as that exchange price of RM0.469 for ECOWLD implies 70% discount to ECOWLD’s latest NTA per share of RM1.57, which is similar with the implied 69% discount of issue price of UEM Sunrise share to its latest NTA per share of RM1.42.

Enlarged entity with stronger financial muscles. We think that one of the benefits from the proposed merger would be the stronger financial muscles of an enlarged entity for overseas and local projects expansion. Note that net gearing of ECOWLD is higher at 0.64x compared to UEM Sunrise’s net gearing of 0.48x, hence Eco World could leverage on UEM Sunrise’s balance sheet for more financial resources. Besides, we think that the proposed merger would allow ECOWLD to participate the development of UEM Sunrise’s huge landbank of 9,162 acres in Iskandar Malaysia as ECOWLD has good expertise in marketing and branding. Meanwhile, ECOWLD would make a decision on the proposal by 30th October to commence discussions on the proposed merger.

Maintain BUY with an unchanged TP of RM0.68. We make no changes to our earnings forecast. We maintain our BUY call on ECOWLD with unchanged TP of RM0.68, based on 70% discount to RNAV. We like ECOWLD for its attractive valuation as it is trading at 74% discount to latest NTA of RM1.57 per share.

Source: MIDF Research - 6 Oct 2020