- TheEdgeDaily reported that the scrapping of the Rio-Tinto Aluminium (Malaysia) Sdn Bhd(RTA)-Cahya Mata Sarawak (CMS) JV to develop a new RM7bil aluminium smelter is unlikelyto cause a significant dent on the implementation of SCORE. We had written yesterdaythat both parties had mutually decided to terminate the JV (Sarawak AluminiumCo Sdn Bhd or SALCO) after they failed to finalise commercial power supply termswith state-utility firm, Sarawak Energy Bhd (SEB). Last October, RTA was also reportedlyset to divest 13 assets that could either be sold-off or consolidated into a largerentity ' as part of the mining giant's $8bil asset divestment programme.

- More importantly, we believe SCORE's massive attractiveproposition remains firmly intact. This is largely driven by its ability tooffer attractive and long-term sustainable supply of power, underpinned bySEB's RM22bil capex program until 2020. 

- The Sarawak government had indicated that at least  20 companies have already been shortlisted toinvest at Samalaju Industrial Park ' where four pioneer investors (Press Metal,OM Holdings, Asia Mineral Ltd and Tokuyama) have already taken off the ground.

- To be sure, SEB had indicated on Bernama that it isconfident of filling up the required power requirements that was not taken upby the RTA-CMS JV.  As things stand, SEBis already targeting to sell more than 2,000MW of its power ' implying that theentire firm output of the Bakun hydroelectric dam (~1,771MW out of totalgeneration capacity of 2,400MW) has already been pre-committed.

- CMS itself has also recently taken up a 20% stake in theplanned 600,0000-tonne manganese and ferro alloy smelter by Australian-listedOM Holdings Ltd. The smelter is scheduled to commence operations in 2013.

- With increasing power demand, we see expect the Sarawakgovernment to step-up in the roll-out of basic infrastructure that is requiredto support these massive energy-intensive investments. Based on our recentground checks, some RM1.1bil worth of federal funding has already beenallocated for this year ' including a RM500mil facilitation fund to kick-starta new port at Samalaju.

- We envisage at least four major infrastructure projectsthat are likely to be rolled-out over the next few months: (i) 600MW Balingiancoal-fired power plant (RM2.5bil); (ii) 500kV backbone transmission system(Bunut-Kuching)  [RM3bil]; (iii) balanceof works for the Kuching Sewerage project (RM~RM1.7bil); and (iv) New Samalajuport (RM1bil).

- For strategic positioning within Sarawak's SCORE, werecommend investors to BUY Hock Seng Lee (HSL) and Sarawak Cable for theirrespective select strengths in marine/civil construction and transmissionline-related work. From our an end-user standpoint, our pick is Press Metalwhich is three out of the four pioneer investors which have already securedlong-term power supply agreements with SEB. Phase 2 of Press Metal's plant 'when completed in stages by June next year ' would triple the group's capacityto 360,000 tonnes and solidify its solid progression as the largest integrated aluminiumproducer within ASEAN.

Source: AmeSecurities