KUALA LUMPUR: UMW Holdings Bhd soared almost 10 per cent yesterday, while its subsidiary UMW Oil & Gas Corp Bhd (UMW O&G) plunged more than 17 per cent, following the announcement of their consolidation plans.
UMW Holdings was Bursa Malaysia’s top gainer yesterday, closing 46 sen higher to RM5.08 after announcing its exit from the oil and gas sector by distributing its shares in UMW O&G to shareholders.
An analyst believes the diversified group remains undervalued.
But UMW’s 55 per cent-owned UMW O&G took a beating as the stock plunged 17.51 per cent, to 73 sen, from Wednesday’s close of 88.5 sen. It was the most active stock, with 97 million shares changing hands.
Icon Offshore Bhd, which is being taken over by UMW O&G, was the third most-traded stock. It rose 6.9 per cent to 46.5 sen with 54.65 million shares changing hands.
Most research houses are positive about UMW Holdings’s exit move, with rerating on the group.
MIDF Research and Hong Leong Investment Bank (HLIB) have upgraded the stock from “neutral” to “buy” and expected a one-off cash dividend for shareholders.
The stock saw 17.65 million shares changing hands, 1,928 per cent higher than Wednesday’s trading.
Jupiter Research director Nazarry Rosli said UMW Holdings was still traded below real value and had a further upside potential.
“This is due to higher forecast performance in the group’s financial years. The group will now be able to concentrate on its core business and deliver better results,” he said.
Post-disposal of UMW O&G, MIDF Research said UMW Holdings’ bottomline could easily swing into profit with significant improvement in its balance sheet.
“Its gearing is expected to more than halve while total borrowings would reduce by 67 per cent,” said the research house in a report.
“Furthermore, UMW O&G registered RM370 million net loss in financial year 2015, which was a big drag on UMW Holdings,” it added.
MIDF Research said the demerger also paved the way for more value creation at UMW Holdings.
This could include a merger with another automotive group with common shareholders as the disposal of UMW O&G would take out a key risk within the group that might have hindered possible merger and acquisitions.
HLIB, meanwhile, believed the strategic exit by UMW Holdings was attractive and value accretive to its existing shareholders.
“UMW Holdings has the option to realise one off cash dividend of up to 67sen per share (based on HLIB’s UMW O&G target share price of 65 sen), equivalent to 14.5 per cent dividend yield.
“Secondly, the shareholders invest in UMW Holdings without exposure to UMW O&G,” it explained.