Tuesday, 12 June 2012

Sarawak Cable - Riding on Trenergy's prowess BUY

- Maintain BUY on Sarawak Cable (S Cable) with an unchanged fair value of RM2.50/share. The Star reported that Trenergy Infrastructure – which is due to be acquired by Sarawak Cable – is in seen as a front-runner for Sarawak Energy’s (SEB) ‘backbone’ transmission line project where tenders closed ~ five months ago. 

- We gather that Trenergy had bid for Phases 1 (SimilajauBintulu-Tada, Sibu: 200km) and 2 (Tada-Kuching: 340km) of the project. Phase 1 is due to be awarded latest by nextmonth, followed by Phase 2 some six months late. 

- We had highlighted that S Cable is one of two parties remaining (originally: five) to vie for this massive job that could cost up to RM3bil (transmission portion: ~RM2bil).

- Importantly, Trenergy has virtually dominated most of the transmission works under SEB since the inception of SCORE in 2008. Notably, it was the contractor for the 275kV Bakun-Similajau line and is involved in the ongoing Murum-Murum Junction (~RM100mil).

- We learn that S Cable is looking to raise at least RM40mil through the issuance of ~25 million new shares via  a private placement to support the combined acquisition of Trenergy and Sarwaja Timur (~RM50mil-RM60mil).

- To fund it, S Cable may unveil new plans to take-up 100% of Trenergy in cash through proceeds from the private placement (targeted by end-3Q12). Previously, S Cable had proposed to acquire a 65% stake in Trenergy and thebuying–out of Sarwaja through the combined issuance of ~16.7 mil new shares @ RM2.12/share (RM35.5mil).

- We are positive on this new plan, as it would enable S Cable to ride the full upside from both units going forward whilst eliminating minority leakages. Our initial estimates point to an accrement of 1%-3% for FY13F-14F FD EPS(FY12: -5%) – where the positive impact from this exercise will likely flow through from 2H12 onwards.

- Equally, S Cable is well-positioned to secure more transmission line jobs under SEB’s RM22bil capex program (until 2020). Apart from the 500kV project, other near-term bids include the (i) 275kV Mambong-Serikin (West Kalimantan); and (ii) last-mile hook up lines at Samalaju Industrial Park for OM Materials’ Sarawak’s manganese/ferroalloy plant together with Phase 2 of Tokuyama Corp’s polycrystalline plant.

- Based on just a 20% share (~RM400mil) of the transmission portion of the 500kV job, we estimate this to potentially triple S Cable’s outstanding contracts (including Trenergy) to ~RM600mil – suggesting moreupside to our FY12F new orderbook forecast of RM550mil.

Source: AmeSecurities

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