AmResearch maintains Buy on Sarawak Cable, FV RM2.05

by JF Wed 03 Jul 2013, 10:51

KUALA LUMPUR: AmResearch maintains its Buy recommendation on Sarawak Cable with a sum-of-parts driven fair value of RM2.50 a share.

It said on Tuesday the 500kV backbone transmission line (transmission package valued around RM1bil) could be awarded soon as the recent power blackout in Sarawak further underscores the need to expedite its implementation.

To recap, news reports stated the power failure in Sarawak last week was caused by a sudden drop of 456MW of power supply in the Bakun hydro plant.

The outage in Bakun led to a shutdown of Sarawak Energy's (SEB) power stations in Sejingkat, Batang Ai, Mukah, Bintulu and Miri.

"As the state investigates further on the cause of the blackout, we opined that SEB will need to expedite the implementation of the 500kV line soon to ensure stable power supply to heavy industries within SCORE.

"Our channel checks indicate that the 500kV tender is only awaiting state's approval and it could come out in August," it said.

AmResearch said news reports stated Tenaga Nasional plans to spend RM2.2bil to improve its transmission services in Peninsular Malaysia in FY13 ending Aug 31.

It pointed out Sarawak Cable has already secured two jobs to replace cables in Perak and Johor with a combined value of RM100mil.

"Given Tenaga's commitment, we think Sarawak Cable could secure more jobs to replace the former's 30-year old copper cables with aluminium ones," it added.

AmResearch said Sarawak Cable would also benefit from the acceleration of state government's rural electrical scheme to meet the state's original target of 95% by year-end (currently about 60%).

The research house expected Sarawak Cable to secure 80% of the total RM400mil worth of jobs to be tendered this year.

“Also, note that the one for two rights issue goes ex today. We have an ex-rights fair value of RM3 a share and an ex-all (includes bonus issue) of RM2.50 a share. Sarawak Cable is a laggard among Sarawak-based stock with attractive forward core FD PEs (ex-all) of 4.0 times to 7.0 times on FY14F-FY15F EPS with ROEs of 18%-24%,” it said.