THE failed merger bid between UEM Sunrise Bhd (UEMS) and Eco World Development Group Bhd (EcoWorld) might be seen as an opportunity lost to UEMS to leverage EcoWorld’s expertise in marketing and branding.
According to Hong Leong Investment Bank analyst Bazira Abdullah, EcoWorld is known for its marketing expertise and world-class township planner with a larger domestic earnings base that will help UEMS reduce earnings volatility from its exposure to foreign operations.
“The merged entity will see an enlarged landbank (increases to 14,500 acres [5,867.94ha] from 9,900 acres) making it one of the largest property development landowner in Malaysia.
“However, even if the merger exercise is to happen, we reckon UEMS may require a longer time to monetise its overall landbank as it already has a large landbank as it stands now,” she said in a research report last week.
Overall, she said both companies are better off independent and focusing on their own business plan to maximise their own value.
However on the flipside, she said the cessation of the proposed merger, UEMS will be able to preserve its balance sheet standing and pursue other corporate proposals that may be more complementary to its strategy and growth.
“Previously, when UEMS announced the proposed merger with EcoWorld, we were slightly negative on the near-term implications as UEMS will be inheriting EcoWorld’s balance sheet, which currently stands at a net gearing of 0.64 time (vis-à-vis UEMS’ 0.4 time),” she noted.
Malaysian Rating Corp Bhd (MARC) recently affirmed the UEMS long-term rating at AA- based on the company’s intrinsic credit strengths said, the failed merger means a reversion to the individual company’s status quo.
Specifically for UEMS, MARC did not incorporate any impact of a merger with EcoWorld, which has now been cancelled, MARC VP of ratings Taufiq Kamal told The Malaysian Reserve (TMR).
“We do not foresee business deals falling through because of the reimplementation of the Movement Control Order (MCO). While corporate players could remain cautious in undertaking deals, recent evidence has shown that the capital market has remained active in 2020.
Furthermore, the anticipation of a vaccine rollout in Malaysia soon would keep deals in the pipeline,” he explained.
The proposed merger of UEMS and EcoWorld has been called off due to the challenging environment presented by the latest round of coronavirus restrictions that played a part in the company’s decision to walk away from the negotiations.
UEM Group Bhd on Oct 5, 2020, proposed to combine UEMS with EcoWorld to potentially create Malaysia’s second-largest property company by landbank and sustain a long-term value creation and growth.
UEM said the merger between its 66.1%-owned unit and EcoWorld would create an opportunity for an existing government-linked company (GLC) to be in partnership with the private sector to create one of the largest property developers in Malaysia, with a projected gross development value of RM173.2 billion and a total land- bank of more than 6,880ha locally.
UEM is a 100%-subsidiary of Khazanah Nasional Bhd.
Malaysian Institute of Estate Agents president-elect Chan Ai Cheng does not see a major fallout from the breakdown in merger talks, as both EcoWorld and UEMS are well established prominent property developers in Malaysia.
“There are benefits in all forms of business structures. The giants will have their market share and so will the niche developers and it wouldn’t be due to Covid-19 per se.
“The strength of a property development company rests in its management, project attractiveness which results in sales — which is the key to the growth of any company,” she told TMR.
Chan believes the 2021 property market is set to recover despite the re-emergence of the Covid-19 infections and MCO 2.0.
“In fact, there were already signs of recovery after the previous MCO. “This time around, the feeling among agents is that many are better prepared, as well as buyers/ sellers are adopting the new norms of property viewings and transactions remotely,” she added. EcoWorld’s counter rose three sen or 6.52% to settle at 49 sen last Friday, giving the group a market capitalisation of RM1.44 billion. UEMS, meanwhile, closed one sen or 2.35% lower at 42 sen, with a market capitalisation of RM2.08 billion.
