Shareholders of Sunway Holdings Bhd (Sunway) and Sunway City Bhd (SunCity) should accept the estimated RM4.5 billion merger proposal between the two companies, analysts recommended.
The merger plan, via a new company (newco) called Sunway Sdn Bhd, is “synergistic”, they noted.
Analysts at OSK Research Sdn Bhd, for example, have estimated that the merged entity could generate at least RM30 million over the next two years from synergies.
The exercise, first announced last November, entails the newco offering RM2.60 per Sunway share, RM1.50 per Sunway warrant and RM5.10 per SunCity share and RM1.29 per SunCity warrant.
Shareholders and warrantholders of both the construction and property companies will vote for the proposal at their respective extraordinary general meetings Wednesday would trade at a price to book value (P/BV) of 1.39 times upon listing, compared to its peers at 2.62 times.
“At 1.84 times P/BV, the newco would be valued at RM3.70, providing a 32.1 per cent upside from its listing price of RM2.80. This will give rise to a market capitalisation of RM3.6 billion,” it explained.
Though the implied merger price of RM2.60 has created a cap on Sunway’s stock price, OSK Research said Sunway is worth more than that.
“Based on a 30 per cent discount to its peers, the newco would be worth RM3.70 per share, implying a RM3.27 fair value for Sunway given the share swap ratio,” it said.
OSK Research said even if Sunway’s share price does not move up to reflect the potential RM3.70 value of the newco, investors will not lose out as the upside would come from the newco when it is actually listed.
The firm noted that here could be further upside to its valuation for the newco and hence, Sunway.
“This could arise from the newco being valued closer to its peer average,” it said.
OSK Research pointed that the newco’s steep 30 per cent discount to its peer average may not be “warranted” as it will be the fourth largest property stock by market value post-listing. – Business Times
