KEY INVESTMENT HIGHLIGHTS

• Proposal to merge UEM Sunrise with Eco World Development

• Details on the proposed merger

• Merger allows UEM Sunrise leverages on Eco World’s expertise

• Earnings estimates maintained

• Maintain BUY with a revised TP of RM0.52

Proposal to merge UEM Sunrise with Eco World Development. UEM Sunrise announced that it has received a letter from UEM Group proposing a merger between UEM Sunrise and Eco World Development into an enlarged group via an exchange of shares and warrants. Upon completion of the proposed merger, Eco World 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, Eco World shareholders will receive new shares in UEM Sunrise at an issue price of RM0.443 in exchange for Eco World 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 Eco World share held. We think the valuation is fair to both parties as that exchange price of RM0.469 for Eco World implies 70% discount to Eco World’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.

Merger allows UEM Sunrise leverages on Eco World’s expertise. We think the proposed merger would allow UEM Sunrise to leverage on Eco World’s expertise in marketing and branding. This may help to unlock the value of its huge landbank in Iskandar Malaysia. Note that UEM Sunrise has remaining landbank of 9,162 acres in Iskandar Malaysia with remaining GDV of RM80.9b. Besides, one of the benefits from the proposed merger would be the stronger financial muscles of an enlarged entity for overseas and local projects expansion.

Maintain BUY with a revised TP of RM0.52. We make no changes to our earnings forecast. Nevertheless, we revise our TP for UEMS to RM0.52 from RM0.54 as we update our GDV figures in our RNAV valuation. Our discount to RNAV remains unchanged at 75%. We maintain BUY on UEM Sunrise as we expect earnings to return to the black in 2HFY20. Besides, valuation is attractive as it is trading at 73% discount to latest NTA of RM1.42 per share.

Source: MIDF Research - 6 Oct 2020