- We continue to place Sarawak Cable Bhd (SCable) and its fair value (RM1.70/share) UNDER REVIEW pending the firming up of details of its proposed acquisitions from HNG Capital Sdn Bhd.

- The group announced yesterday that its wholly-owned subsidiary, Trenergy Infrastructure Sdn Bhd, has received a letter of acceptance for the proposed “132kV single circuit loop in/out PMU 132/33kV Enstek from KLIA-Salak Tinggi” transmission project.

- The contract was awarded by Tenaga Nasional Bhd (TNB) and is valued at RM14.7mil.

- The project would commence immediately (i.e. 7 July) and is expected to be completed within 448 days (or by 3QFY15).

- Although the value of the contract is small, we opine that it is positive as the group seeks to gain a stronger foothold in the Peninsular Malaysia market.

- Recall that the group is considering the acquisitions of Universal Cable (M) Sdn Bhd (UCMB) and Leader Cable Industry Bhd (LCIB) for RM210mil from HNG.

- The acquisitions would make SCable the single largest integrated transmission cable player in Malaysia and one of region’s biggest producers of 500kV cables.

- UCMB has three factories in Nilai and one in Johor, while LCIB has one in Kedah. SCable’s factories are mainly located in Kuching. SCable’s market share in Malaysia is expected to grow to 50% following the acquisitions.

- The acquisitions are expected to improve SCable’s economies of scale when bidding for transmission jobs in Peninsular Malaysia. Note that TNB is looking to upgrade the existing 275kV lines to 500kV to prevent transmission loss. As such, TNB is expected to spend RM1bil-RM2bil annually for this.

- Given that, SCable may stand a better chance to secure more transmission jobs in Peninsular given its position as an integrated transmission cable supplier.

- Meanwhile, SCable will be kept busy with the 500kV backbone line (with transmission packages worth RM620mil) in Sarawak. Contributions are expected to flow through from 2Q onwards. Its current order book stands at RM756mil.

- We maintain our numbers for now as SCable is still conducting due diligence on the proposed acquisitions. We expect a decision in 3Q. We place SCable UNDER REVIEW pending the firming up of acquisition details.

Source: AmeSecurities