Sarawak Cable Bhd ( Valuation: 1.40, Fundamental: 0.55)
(Jan 11, RM1.76)
Maintain buy with an unchanged fair value of RM2.20: We maintain our “buy” call on Sarawak Cable Bhd, with an unchanged sum-of-parts (SOP)-based fair value of RM2.20. It has proposed to undertake a private placement of up to 10% of its issued and paid-up capital.
It said it is looking to issue 31.7 million new shares to third-party investors at a discount of not less than 10% (to the weighted average market price of its shares traded five days before the price-fixing date). At an indicative price of RM1.70, the private placement will raise up to RM53.9 million in proceeds.
Sarawak Cable said the placement is intended to strengthen its capital structure and reduce it u its gross gearing from 1.6 times (as at end-December 2014) to 1.2 times. As at end-Sept 2015, Sarawak Cable’s net gearing stood at 1.7 times. As at end-December 2015, bank borrowings amounted to RM593.2 million. Based on its interest rates of 5.35% to 5.64%, Sarawak Cable’s interest expenses are expected to be reduced by about RM3 million per annum. Based on our calculations, the proposed placement will result in an earnings per share (EPS) dilution of about 8% to 20.1 sen and 21.2 sen for the financial year ending Dec 31, 2016 forecast (FY16F) and FY17F respectively.
We view the deal positively as it would reduce net gearing and improve cash flow. We maintain our numbers for now. The placement is expected to be completed within the first quarter of FY16. We continue to like Sarawak Cable as the leading integrated transmission line and power cable player in Malaysia. Its 78%-owned mini hydro plant (11MW) in Sumatra, Indonesia, is on track for a commercial operating date in March and will provide steady recurring income.
Sarawak Cable’s outstanding order book is healthy at about RM1.3 billion. We have a replenishment rate of RM400 million for this year. Prospective jobs include 275kV underground cables in Pengerang, Johor, Tenaga Nasional Bhd ( Valuation: 1.20, Fundamental: 1.30)’s (TNB) 500kV line package three and cable supply to TNB (about RM900 million per annum). — AmInvestment Bank, Jan 11
SCABLE (5170) - Sarawak Cable’s private placement to improve cash flow
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