- We maintain BUY on Sarawak Cable (S Cable), with a tweaked lower SOP-derived fair value of RM2.00/share (vs. RM2.02/share previously).

- The company has proposed a 1-for-2 renounceable rights issue of 77.625 shares for RM1/share and a subsequent 1-for-5 bonus issue of 46.575 shares.

- The entire exercise is expected to be completed in the third quarter of the year.

- S Cable’s paid-up capital now stands at RM77.625mil comprising 155.250mil shares of 50 sen each.

- The rights price is at a 21.9% discount to the theoretical exrights price of RM1.28/share based on the 5-day weighted average market price up to 3 April 2013 of RM1.42/share.

- S Cable will procure written undertakings from Dato’ Sri Mahmud Abu Bekir Taib, Sarawak Energy Bhd (SEB), Toh Chee Ching, Central Paragon Sdn Bhd and Yek Siew Liong to subscribe in full for their respective entitlements.

- As at 22 March 2013, they collectively hold 107.14 mil shares, representing 69.01% of its paid-up capital. Any rights shares not taken up will be fully underwritten.

- About 86% or RM66.6mil of the proceeds will be used for working capital and capex within 24 months, while 13% or RM10mil will be used to pare down borrowings, which totaled RM123mil as at end-Dec 2012 – for a net debt:equity ratio of 0.6x.

- S Cable said 75% of the working capital portion would be for existing and future projects in the power utility industry, including turnkey/engineering/ fabrication projects, while the remaining would be used for the procurement of raw materials.

- S Cable’s prospects are inextricably linked to the implementation of Sarawak’s long-delayed proposed 500kV backbone power line, for which the transmission package is reportedly to be worth ~RM1bil.

- We expect the award of the project to be announced after the 13th General Election.

- S Cable has been tipped to win the project, given that it is the biggest power transmission EPC player in the state and is backed by the state’s utility SEB, which at last count holds a 21.56%-associate stake.

Source: AmeSecurities