UEM Sunrise-EcoWorld merger unlikely

The rise in UEM Sunrise’s share price was related to the speculation of a possible merger on the card, says analyst


UEM Sunrise Bhd rose 3.6% last Friday after a news report of a possible merger between the property developer and Eco World Development Group Bhd, but an analyst does not see the synergy of the combined firm.

The counter saw 4.2 million shares changing hands before it closed the day’s trading three sen higher at 72 sen. The company — which is majority-owned by state-owned fund Khazanah Nasional Bhd — is valued at RM3.27 billion.

An analyst said the rise in UEM Sunrise’s share price was related to the speculation of a possible merger is on the card.

“The volume traded was not much so it is probably just a knee-jerk reaction. In addition, UEM Sunrise share price has been undervalued for quite some time,” the analyst told The Malaysian Reserve.

The analyst expects the share price to stabilise between 70 sen and 80 sen in the future.

“But the speculated merger between UEM Sunrise and EcoWorld is unlikely to happen now, but more probable in the future.

“From what I know, UEM Sunrise does not have any plans to merge with EcoWorld. It’s probably from Khazanah’s side which wants to divest its assets.

“EcoWorld’s gearing is so high. I’m not sure what they can offer to one another,” the analyst said.

The New Straits Times’ reported UEM Sunrise may buy-over EcoWorld in a share swap deal that could see the latter’s substantial shareholder Tan Sri Liew Kee Sin, ending up with a 15% to 20% stake in the former.

Khazanah — which has a 66.06% indirect interest in UEM Sunrise — will see its shareholding shrink in the company that is famous for its development in Mont Kiara.

Khazanah has been planning to cut its stake in several state-linked firms as the government revamps the sovereign wealth fund’s investment strategy.

Prime Minister Tun Dr Mahathir Mohamad — who has taken Khazanah under his wings — said Khazanah has strayed from its intended purpose of helping Bumiputera entrepreneurs.

Dr Mahathir who is the chairman of the fund, is bent on setting Khazanah to its new direction.

Meanwhile, EcoWorld saw 59.5 million shares traded last Friday and closed two sen or 3.10% higher to 67 sen.

The rise was however mainly due to the highest quarterly result it recorded for the third quarter ended Jul 31, 2019 (3Q19).

EcoWorld’s net profit for the quarter rose 81.58% year-on-year (YoY) to RM50.48 million as revenue increased 14.68% YoY to RM521.37 million.

Kenanga Investment Bank Bhd, in a note last Friday, said it expects stronger earnings for EcoWorld in coming quarters driven by healthy contributions from ongoing projects as well as JCE projects, especially from Eco World International Bhd in 4Q19 onwards.

“We believe this is a good time to accumulate EcoWorld as it has been a laggard among peers declining by 31% year-to-date while comparable peers have only declined by 10% on average and is trading at a price by volume of 0.4 times versus peers of 0.4-0.6 times.

“We are comfortable with our ‘Outperform’ call as we expect earnings to kick in mostly in FY20, while a commitment to dividends via a policy would affirm our call as well as act as confirmation for better earnings ahead,” it added.

EcoWorld when contacted regarding the news said it is unable to comment on speculations. UEM Sunrise also said it was unable to comment on the matter at present.