Streets are negative on the exercise, as the offer of RM2.56 per share is lower than their existing TP of RM2.70, a 20% discount to Streets estimated SoP (sum-of-parts) of RM3.38 per share and amidst expectations of better earnings prospects ahead.

UMW'S  OFFER TAK SEDAP LANGSUNG................

Its plan to tighten its grip on Perodua may not be smooth sailing simply because its offer price to take over MBM Resources Bhd, which holds 22.58% stake in Perodua, is viewed as not that attractive.

The group’s intention to buyout MBM Resources at RM2.56 per share, which is expected to cost RM501.04 million in total, is hailed as a wise move. 

Streets however, concur that it is quite a raw deal for MBM Resources shareholders.

Streets are negative on the exercise, as the offer of RM2.56 per share is lower than their existing TP of RM2.70, a 20% discount to Streets estimated SoP (sum-of-parts) of RM3.38 per share and amidst expectations of better earnings prospects ahead.

Streets reckon the takeover as cheap for UMW to obtains a controlling stake in Perodua and is unlikely to appear enticing enough for MBM Resources’ minority shareholders to accept.

In the case that minority shareholders reject the eventual mandatory offer, things would likely remain status quo for the minorities other than having a new majority shareholder running the show at MBM. 

Also the offer price valued MBM Resources at a 38% discount to its peers, in terms of PER. Based on Streets earnings forecast for the financial year ending Dec 31, 2018 (FY18), the proposed acquisition works out to 10 times the PER which is at a 38% discount to the sector average PER of 16 times. 

Bermaz Auto Bhd has a PER of 19.5 times, while Sime Darby Bhd has a PER of 24 times.

In terms of PBV, the acquisition works out to 0.7 times FY18 PBV compared with its five-year historical average of 0.66 times.

Critics however noted that MBM Resources’ share price performance has not been encouraging over the years, thus this could be an exit opportunity for MBM Resources shareholders. The stock has been on a declining trend since mid-2015, from a high of RM3.74.

Also, it is worth noting that the share price only surpassed the offer price in September and October 2016, and has continuously been on a downtrend since then.

Post acquisition, UMW will have a 70.6% stake in Perodua consisting of a 48% direct interest and 22.6% via MBM Resources.