- We place our fair value (RM1.70/share) for Sarawak Cable Bhd (SCable) UNDER REVIEW pending further details on the proposed acquisitions that were announced yesterday.

- SCable has accepted a conditional offer from HNG Capital Sdn Bhd for the former to purchase 100% equity interests in Universal Cable (M) Bhd (UCMB) and Leader Cable Industry Bhd (LCIB) for RM210mil.

- The consideration will be settled via a combination of cash, assumption of liabilities and issuance of new shares. However, no further details on the breakdown were revealed.

- The two companies are involved in the manufacture and sale of telecommunications and power cables for the domestic and export markets.

- SCable have 60 days to carry a due diligence before it decides to enter into a share sale agreement (SSA). HNG will not offer to sell the shares to other parties during the period.

- Under the SSA, HNG will guarantee a total PBT of RM21mil at the two companies for FY14F ending Dec. Any shortfall will be paid by HNG.

- We view the offer positively as it will fortify SCable as the leading cable manufacturer in the country with an estimated market share of over 50%.

- UCMB has three factories in Johor and one in Nilai, while LCIB has one in Kedah. UCMB’s products include insulated power cables, aluminium EC rods, and housing cables, while LCIB manufactures ACSR and telco cables, etc.

- We understand that following the acquisition, S Cable will essentially supply all the cables for the 500kV job on a consolidated basis. Already, the acquiree companies are two of the top suppliers in Peninsular Malaysia. Margins are likely to be similar with that of SCable’s existing power cable business.

- Note that non-independent and non-executive director Datuk Seri H’ng Bok San is the controlling shareholder of HNG.

- If accepted, we expect the SSA to be finalised within 3Q before it seeks shareholders’ approval in an EGM.

- We opine that SCable could partially fund the acquisition via bank borrowings. As at end-March, SCable’s net gearing stood at only 2%. We place SCable UNDER REVIEW pending further details on the proposed offer.

Source: AmeSecurities