"All in, we view the latest moves positively in a bid to improve SCable's earnings profile and capital structure," AmResearch said.
As such, Am Research's analyst Max Kos has his maintained a "Buy" call on SCable, with an unchanged sum-of-parts (SOP)-based fair value of RM2.20.
In a note today, Am Research cited an interview by The Edge Financial Daily that SCable is in talks to sell its loss-making Aerial Power Lines Sdn Bhd (APL), which manages and operates helicopters for power line operations. The deal is expected to wrap up in six months, according to SCable's group managing director and CEO Aaron Toh.
Toh also noted that SCable’s two priorities this year are to dispose its non-core assets, as well as to find equity investors to finance its mini hydro plant in Sumatra.
On the hydro plant, Toh said the group is in talks to sell up to 20% stake of the mini hydro plant to a Singapore-listed construction company. This is to boost capital levels for the plant and reduce SCable’s net gearing, the note reads.
If all goes well, the Singaporean party may also take up stakes in SCable’s potential new plants in Indonesia (development cost of RM80 million each).
SCable was also proposing a private placement of up to 10% of its existing paid-up capital to raise RM54 million. This is a bid to reduce its gross gearing from 1.6 times to 1.2 times. As at end-Sept 2015, its net gearing stood at 1.7 times.
The private placement is also intended to increase institutional participation in the stock. Toh noted that he is targeting a liquidity of 40% (vs. less than 30% currently).
Two US-based funds have reportedly shown interest in the private placement, with a possible appointment of two new board members in SCable.
Currently, SCable is also tendering projects worth about RM1 billion.
“We are also unperturbed by the delay of the hydro plant’s commissioning from March to May, given the long concession period of the plant. It is expected to start selling electricity in June.
“Maintain buy. Our SOP value is based on 10 times FY16 earnings per share (EPS) for its cable and transmission line businesses, and the discounted cash flow (DCF) value of its mini hydro plant,” Koh said.
SCable shed as much as 5 sen or 2.9% to RM1.67 today, with 618,200 units exchanging hands as at 11.08am. The counter has gained 26.56% over the past one year.
(Note: The Edge Research's fundamental score reflects a company’s profitability and balance sheet strength, calculated based on historical numbers. The valuation score determines if a stock is attractively valued or not, also based on historical numbers. A score of 3 suggests strong fundamentals and attractive valuations.)
SCABLE (5170) - Am Research positive on Sarawak Cable's strategy to improve earnings, capital structure
http://www.theedgemarkets.com/my/article/am-research-positive-sarawak-cables-strategy-improve-earnings-capital-structure
SCABLE, SCABLE (5170), 5170, EN5170, KLSE:SCABLE, Investing, AmResearch,
