More mergers, JVs in the property market

The Covid-19 impacted economy makes it possible for an increase in M&A activity in general, including the property sector, says analyst


ANALYSTS believe the Malaysian property sector is ripe for more mergers and acquisitions (M&A) or joint ventures (JVs) going forward as land in prime locations like the Klang Valley is limited and the market has a high number of unsold inventory.

The deals may not be coming fast as developers opt to remain independent because they remain financially in good health.

A check on the Real Estate & Housing Developers’ Association Malaysia’s website showed it has some 1,500 members all over Peninsular Malaysia with some 100 property companies listed on Bursa Malaysia.

Public Investment Bank Bhd head of research Ching Weng Jin said the Covid-19 impacted economy makes it possible for an increase in M&A activity in general, including the property sector.

“For developers, it would make sense for a merger provided they are complementary in functioning in different spectrums of the industry so that the cashflows and balance sheet management could be more optimal.

“Pricing is always an issue at times like these because both parties will want to maximise their value and that may make it tough for a merger to materialise,” he told The Malaysian Reserve.

Recently, Khazanah Nasional Bhd’s wholly owned subsidiary UEM Group Bhd submitted to the respective boards of UEM Sunrise Bhd and Eco World Development Group Bhd (EcoWorld) proposing for each entity to consider and deliberate on a potential merger between the two companies.

The strategic merger of the two could create one of Malaysia’s largest property companies by landbank acreage, and potentially spur more M&A amid a soft property market.

Many analysts deemed the proposed valuation for the merger to be fair. The proposed deal will see the issuance of new ordinary shares in UEM Sunrise at an issue price of 44.3 sen in exchange for EcoWorld’s shares at an exchange price of 46.9 sen.

Rakuten Trade Sdn Bhd VP of research Vincent Lau said owners of property companies may be more biased to work together than outright M&A.

“Developers might be talking about acquiring land from each other or working together on a development rather than an M&A,” he said.

In 2017, there was a speculation of a merger between Hua Yang Bhd and Magna Prima Bhd. Magna Prima owned a landbank in prime locations, while Hua Yang had the capital and branding in the marketplace.

Today, Hua Yang remains the largest shareholder in Magna Prima with 30.72% stake owned via its wholly owned subsidiary Prisma Pelangi Sdn Bhd.

Inter-Pacific Securities Sdn Bhd head of research Victor Wan believes local developers will be more likely to go alone than considering a corporate exercise.

“Unless there are synergistic benefits, I do not think there will be more M&A between property players as developers have always been relatively independent in their own operations and offerings,” he said.

Data from the National Property Information Centre’s Property Market Status Report for the first half of 2020 (1H20) showed there were 31,661 overhang residential units worth RM20.03 billion, increased by 3.3% in volume and 6.4% in value from 30,664 units worth RM18.82 billion in 2H19.

In the serviced apartment subsector, the overhang continued to rise and formed the bulk of commercial property overhang, recording a total of 21,683 units with a value of RM18.64 billion, up by 26.5% in volume and 24% in value against 17,142 units worth RM15.04 billion in June to December 2019.