Sunrise surges 27.8% on proposed merger

Sunrise Bhd’s share price surged to a 52-week high of RM3.26 yesterday. The counter was the second most actively traded stock on Bursa Malaysia, riding on last week’s surprise announcement of UEM Land Bhd’s proposed conditional acquisition of the company for RM1.39 billion.

Sunrise shares, which closed at RM2.52 previously, ended the day 27.8% or 70 sen higher at RM3.22, on a turnover of 44.77 million shares which translated to RM138.83 million in value. The stock has risen 56.31% year to date, with about half of those gains from yesterday’s rally.

Sunrise was among the top gainers in absolute terms on the stock exchange yesterday, losing only to plantation companies Kulim (M) Bhd and Kuala Lumpur Kepong Bhd which jumped 96 sen and 82 sen respectively to close at RM12.90 and RM20.62.

Meanwhile, UEM Land Holdings Bhd’s shares also surged in active trade, adding 23 sen or 10.2% from their previous close of RM2.26 to end the day at RM2.49 on high volume of 32.94 million shares. It was the fourth most actively traded stock.

Analysts believe Sunrise’s share price shot up as investors could have priced in the RM2.80 offer by UEM Land and the interim 20 sen net dividend declared by Sunrise. However, they were surprised that the stock came within a whisker of hitting limit up in yesterday’s trade.

“We didn’t expect the stock to be so strong. It was kind of unexpected,” an analyst tracking the stock told The Edge Financial Daily. He added that investors were positive on the deal and on the enlarged UEM Land.

“We anticipated the stock [Sunrise] advancing but thought it would be about RM3.50, give or take. It appears to be a done deal now,” another analyst with a local stockbroking firm noted.

An observer said the strong gains in Sunrise was expected and that the stock would ride on the performance of UEM Land’s share price from now on. With UEM Land closing at RM2.49, the share swap ratio plus 20 sen net dividend would price Sunrise’s shares at a theoretical RM3.51, he noted.

Under the proposed merger, UEM Land would pay RM2.80 per Sunrise share through either a share swap of 1.33 UEM Land shares priced at RM2.10 each for one Sunrise share or 2.8 redeemable convertible preference shares (RCPS). The RCPS are convertible to one new UEM Land share by tendering 2.3 RCPS, or one RCPS and RM1.30 cash.

Maybank IB Research viewed UEM Land’s conditional takeover offer for Sunrise shares positively as the price offered was “fair” and advises the company’s shareholders to take up the share swap instead of the RCPS option.

“Based on the 20 sen net DPS (dividend per share) declared by Sunrise earlier and our estimate of RM2.15 to RM2.20 RNAV (revised net asset value) per UEM Land share post-Sunrise acquisition, the deal offers a cheaper entry into UEM Land,” said the research house in a report yesterday.

Maybank IB said that minority shareholders should accept the first option instead of the second as UEM Land shares are more liquid than the unlisted RCPS, which carried no coupon.

It pointed out that the share swap offered an attractive RM2.10 entry into UEM Land versus its RM2.15 to RM2.20 estimated RNAV per UEM Land share post-acquisition and RM2.30 conversion price for the RCPS.

The research house added that investors would be able to ride on the upside potential of UEM Land by holding on to the UEM Land shares under the first option and would still able to cash out later. It has set a target price of RM3 on the stock.

“We expect Sunrise’s share price to be capped at RM2.80 in the near term, thus we revise our target price to reflect that,” said ECM Libra Investment Research in a report yesterday.

The research house said it was maintaining its “buy” call on the stock as the total return to investors after taking into account the net interim dividend of 20 sen was 19%, noting that the ex-date for the dividend is Nov 18.

ECM Libra said that while the takeover offer price fell significantly short of its RNAV estimate of RM3.46, the total return to shareholders was actually RM3 after taking into account the net interim dividend of 20 sen.

It added that the company’s trailing price-to-book ratio at the offer price of 1.4 times was similar to the average of past takeover offers of property companies.


This article appeared in The Edge Financial Daily, November 9, 2010.