- The Star reported today that Sarawak Cable (S Cable) will commence construction of its 10MW mini-hydro plant in North Sumatra in two months.

- S Cable group managing director Toh Chee Ching told the daily that the project’s site survey has been completed and it is in the midst of engineering design. He added that the plant will cost RM80mil and will take 18 months to complete.

- To recap, S Cable owns a 65% stake in PT Inpola Mitra Elektrindo (IME), which was awarded a power purchase agreement by PT Perusahaan Listrik Negara Persero (PLN) to design, finance and construct a mini-hydro plant in north Sumatra. IME has a 20-year concession to sell power to PLN for 20 years.

- Toh told The Star that S Cable has secured financing from a local bank to partly-finance the project while RM20mil to RM25mil will come from internal funds. As the hydro plant is only expected to be completed in 2015, we expect minor contributions in the second half of FY2015F.

- More importantly, shareholders yesterday gave the green light for S Cable to raise RM77.63mil from a proposed 1-for-2 rights issue. RM66.6mil from the proceeds raised will be used for working capital and capex, while RM10mil will be used to help pare down borrowings. Also approved is the proposed 1-for-5 bonus issue of 46.6mil new shares.

- We view this positively as the proceeds will be used in anticipation of S Cable securing the 500kV backbone line (transmission package worth ~RM1bil) to be awarded soon. As the rights issue is expected to be completed by end-Aug, we expect the award to be announced sometime then.

- According to The Star, S Cable is tendering for RM1bil worth of power transmission jobs in Sarawak and Peninsular Malaysia. Its latest tender includes a RM30mil transmission line job in Melaka for TNB.

- Just last week, S Cable won a RM32.9mil job to build the proposed 132kV Tudan-Miri airport line. Other potential projects include the Tanjung Manis-Bintulu and Mambong-Kalimantan lines worth RM350mil. S Cable will also benefit from the state government’s Rural Electrification Scheme (RES).

- As at end-May, S Cable has an order book of RM687m, with an outstanding amount of RM202m. We have a conservative order book assumption of RM1b for FY13F (including the 500kV line) to be progressively-recognised in FY13F-FY15F.

- As the only integrated power cable and transmission line player in the state (and region), SCable is still trading at alluring forward core FD PEs of 7x-11x on FY14F-FY15F EPS against solid financials (FY13F net gearing: 7.8%) and ROEs of 18%-24%. Maintain BUY.

Source: AmeSecurities