Sarawak Cable said it is looking to issue 31.7 million new shares to third party investors at a discount of not less than 10 per cent.
KUCHING: Analysts are optimistic of Sarawak Cable’s Bhd (Sarawak Cable) proposal to undertake a private placement of up to 10 per cent of its share capital or 31.7 million new shares, raising an estimated RM54 million in proceeds.
In a statement to Bursa Malaysia last Friday, Sarawak Cable said it is looking to issue 31.7 million new shares to third party investors at a discount of not less than 10 per cent to the weighted average market price (WAMP) of the shares traded five days before the price fixing date.
“At an indicative price of RM1.70 — which is at a six per cent discount to the last closing price, the private placement will raise up to RM53.9 million in proceeds,” calculated AmResearch Sdn Bhd (AmResearch) in a note yesterday.
Sarawak Cable said the placement is intended to strengthen its capital structure and reduce its dependency on bank borrowings following its acquisitions of Leader Cable Industry Bhd and Universal Cable (M) Bhd in December 2014.
AmResearch viewed the deal positively as it would reduce net gearing and improve cash flow.
“We maintain our numbers for now. The placement is expected to be completed within the forecasted first quarter of the financial year 2016 (1QFY16F),” it said yesterday.
“We continue to like Sarawak Cable as the leading integrated transmission line and power cable player in Malaysia. Its 78 per cent-owned mini hydro plant (11MW) in Sumatra is on track for delivery in March and will provide steady recurring income.”
Hong Leong Investment Bank Bhd (HLIB Research) said the proposed corporate exercise is not entirely surprising considering Sarawak Cable’s high net gearing of 168 per cent as of 3QFY15.
“Sarawak Cable is expected to raise RM53.9 million from the placement, of which 99 per cent be used to pare down its debts. On a proforma basis, Sarawak Cable’s net gearing would be reduced from 168 per cent to 151 per cent.
“The group’s high net gearing is mainly due to assumption of debts from the acquisition of Leader Cable and Universal Cable and higher working capital requirements from the enlarged revenue base from the acquired companies.”
While this high net gearing poses as a concern, HLIB Research said this is somewhat justified by Sarawak Cable’s strong earnings step up. It also offers investors a higher return on equity of 14 per cent compared to larger cap contractors at three to 10 per cent.
“Overall, we are positive that Sarawak Cable is taking steps to address its high net gearing. Other potential de-gearing moves would include disposal of its helicopter fleet under Ariel Power Lines which could raise RM100 million and cash flow contributions from its soon to be commenced Kombih3 hydro plant in Sumatera which is fully equity funded.”
AmResearch also observed that Sarawak Cable’s outstanding order book remains healthy at RM1.3 billion.
“We have a replenishment rate of RM400 million for this year, on the back of good prospects in East and West Malaysia. Prospective jobs include the 275kV underground cables in Pengerang; TNB’s 500kV line package 3; and cable supply to TNB (RM900 million per annum).”
Both research houses maintained their buy call for Sarawak Cable, with AmResearch pegging a fair value at RM2.20 per share while HLIB Research maintained a target price of RM2.49.