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Page 1 of 12
15 February 2016
HLIB Research
PP 9484/12/2012 (031413)
Sarawak Elections
MARKET VIEW
15 February 2016
Play on the polls
Highlights Sarawak to hit the polls. The 11th Sarawak Elections must
be held by 20th Sept 2016. However, this is likely to happen
earlier as Chief Minister Adenan Satem (CM Adenan) has
proposed to the Election Commission to hold the polls on
30th April with nominations on 16th April.
BN likely to retain control. Political analysts hold a
consensus view that the Barisan Nasional (BN) coalition will
likely retain control of Sarawak. CM Adenan’s high approval
rating (74%), redelineation exercise resulting to more rural
constituencies and a fragmented opposition are all factors
working in BN’s favour.
Politics of developmentalism. It has been observed that
funding promises, especially for infra increases as election
approaches. This is already happening with Budget 2016
spelling many benefits for “Sarawakians”. We expect more
positive news flow on project rollouts running up to the polls.
What do voters want? A survey by the Merdeka Centre
reveals that “jobs creation” and “improving rural infra” are the
2nd and 3rd most important issues requiring attention from the
State Govt. We believe the State Govt will try and address
these matters through (i) industrialisation of Sarawak’s
economy via SCORE and (ii) building the Pan Borneo
Highway (PHB) to improve connectivity in the state.
SCORE for Sarawak. SCORE has amassed RM33bn worth
of investments from 2008-2014. Most that have set up within
SCORE are energy intensive industries. The key pull factor
here is the availability of cheap electricity generated by
hydro dams. To further harness this potential, Sarawak
Energy has planned to build 12 hydro dams from 2008-2020,
increasing the state’s generation capacity by 7000MW. This
would spur other infra requirements such as transmission
lines and access roads.
Pan Borneo takes off. We reckon that the 1,089km PBH
(RM16bn) will be the most anticipated mega project to kick
start running up to the polls. 17 consortiums are said to have
been prequalified for 10 packages involving the highway’s
main stretch. Initial awards are expected as soon as March.
Stock
Picks
SCable - Beneficiary of ramp up in Sarawak’s generation
capacity via transmission line contracts. Also looking to
supply guardrails and lamp poles for the PBH.
HSL - Marine engineering expertise provides an edge to bid
for PBH given Sarawak’s swampy terrain.
CMS - Beneficiary of PBH via construction and supply of
aggregates. Also a cement monopoly in Sarawak.
Naim - Said to be top contender (JV with Gamuda) for one
of the earlier PBH packages.
TRC - Only Peninsular contractor that can bid for state
funded jobs. Has competed RM1bn jobs in Sarawak.
Harbour – To benefit from Sarawak’s overall development
via increase in demand for project cargo.
Jeremy Goh, CFA
(603) 2168 1138
Approval rating for CM Adenan
Source: Merdeka Centre
Pan Borneo Highway
Source: Lebuhraya Borneo Utara
Potential Sarawak Election plays
Stock Rating Price Target
SCable BUY 1.48 2.57 HSL HOLD 1.93 2.04 CMS Not Rated 5.03 NA Naim Not Rated 2.48 NA TRC Not Rated 0.365 NA Harbour Not Rated 2.70 NA
HLIB Research | Sarawak Elections
www.hlebroking.com
Page 2 of 12
15 February 2016
Highlights
Land of the Hornbills to hit the polls
Sarawak elections this year… The 11th Sarawak state elections must be held latest
by 20 Sept 2016. This is calculated based the automatic dissolution of the Sarawak
State Legislative Assembly (or DUN based on its Malay acronym) on 20 June 2016
being the 5th anniversary of its first sitting. Elections must be held within 90 days from
the dissolution of the DUN with the date to be decided by the Election Commission
(EC). It is possible (and common) for elections to be held earlier should the Yang di-
Pertua Negeri (i.e. Governor) on advise of the Chief Minister, decide to dissolve the
DUN prior to the automatic dissolution date.
Figure #1 Timeline to the 11th
Sarawak state elections
Wikipedia, HLIB estimates
Figure #2 Past elections in Sarawak
Election Year Election Year
GE1 1959 - -
GE2 1964 - -
GE3 1969 SE1 1969
GE4 1974 SE2 1974
GE5 1978 SE3 1979
GE6 1982 SE4 1983
GE7 1986 SE5 1987
GE8 1990 SE6 1991
GE9 1995 SE7 1996
GE10 1999 SE8 2001
GE11 2004 SE9 2006
GE12 2008 SE10 2011
GE13 2013 SE11 2016
Malaysia Parliament Sarawak State
Election Commission
…with a possibility in April. Sarawak’s Chief Minister Tan Sri Adenan Satem (CM
Adenan) earlier this month mentioned that he has met with the EC to propose dates for
the elections. According to sources reported in the media, 18 April has been proposed
as the nomination day while 30 April will be the polling day. This will however, still be
subject to confirmation by the EC as the Chief Minister only has power to recommend
the DUN’s dissolution, not fix the election dates. In any case, we believe that the
approval of the 11 new Sarawak state seats in Parliament late last year further
solidifies the notion that an election could be forthcoming soon. The proposed dates by
CM Adenan also coincide with the 5th anniversary from the previous polls which took
place on 16 April 2011.
Deadline for the Sarawak
Elections is in Sept 2016
but…
…CM Adenan has hinted it
may happen in April.
HLIB Research | Sarawak Elections
www.hlebroking.com
Page 3 of 12
15 February 2016
Sarawak’s political landscape
Diverse demographics. Sarawak has a headcount of 2.6m people, making up 9% of
Malaysia’s population. Compared to its Peninsular counterpart, Sarawak is very
diverse comprising over 40 sub-ethnic groups, each with its own distinct language,
culture and lifestyle. These various ethnicities are broadly categorised into 6 groups
which are Iban (30%), Malay (24%), Chinese (24%), Bidayuh (8%), Orang Ulu (7%)
and Melanau (5%). Apart from the Malays and Chinese, the other mentioned ethnic
groups are indigenous to Sarawak which are categorised as non-Malay Bumiputeras.
Comprising mainly of non-Malay Bumiputeras, Christianity is the most professed
religion in Sarawak at 43% compared to the national level of only 9%. Islam on the
other hand, is the 2nd largest religion in Sarawak at 23% (Malaysia: 61%).
Figure #3 Ethnic composition in Sarawak (3Q13)
Iban30%
Malay24%
Chinese24%
Bidayuh8%
Melanau5%
Orang Ulu7%
Others1%
Sarawak state statistics
The ruling coalition. Sarawak has always been under the Barisan Nasional (BN)
administration which has also ruled Malaysia since independence. Unlike BN in
Peninsular Malaysia which mainly comprises the United Malays National Organisation
(UMNO), Malaysian Chinese Association (MCA) and Malaysian Indian Congress
(MIC), the component parties in Sarawak are different. In Sarawak, the BN component
parties officially consists of Parti Pesaka Bumiputera Bersatu (PBB), Sarawak United
People’s Party (SUPP), Parti Rakyat Sarawak (PRS) and Sarawak Progr essive
Democratic Party (SPDP) which are all home grown “Sarawakian” parties. The BN
coalition in Sarawak is officially led by none other than CM Adenan from the PBB.
Figure #4 BN component parties in Sarawak
Barisan Nasional
The opposition parties. On the other hand, Sarawak opposition parties that currently
hold seats in the DUN are the Democratic Action Party (DAP) and Parti Keadilan
Rakyat (PKR). Other opposition parties that do not hold seats in the DUN include the
newly formed Parti Amanah Negara (PAN), Parti Islam Se-Malaysia (PAS) and smaller
state-centric parties such as the Sarawak National Party (SNAP). Currently, the
opposition leader in the DUN is helmed by Chong Chieng Jen from the DAP.
Sarawak is ethnically more
diverse than its Peninsular
counterpart
BN component parties in
Sarawak are all “home
grown”
DAP and PKR are the only
opposition parties with seats
in the DUN
HLIB Research | Sarawak Elections
www.hlebroking.com
Page 4 of 12
15 February 2016
Predicting the polls
Recap of the previous polls. The previous (i.e. 10th) Sarawak State Elections was
held on 16 April 2011 which saw BN winning 55 of the 71 seats. This however, came
with a reduced margin as the coalition lost 8 seats. Amongst opposition parties, the
DAP gained most ground by doubling its seats from 6 to 12. Whist BN retained its
traditional two-thirds majority seats in the DUN, it only captured 55% of the popular
vote while the now defunct Pakatan Rakyat managed to garner 41%.
Figure #5 Results of the previous Sarawak State Elections
Political Party Votes % Seats %
Parti Pesaka Bumiputera Bersatu (PBB) 192,785 28.7% 35 49.3%
Sarawak United People's Party (SUPP) 111,781 16.6% 6 8.5%
Parti Rakyat Sarawak (PRS) 35,120 5.2% 8 11.3%
Sarawak Progressive Democratic Party (SPDP) 32,693 4.9% 6 8.5%
Barisan Nasional 372,379 55.4% 55 77.5%
Democratic Action Party (DAP) 134,847 20.0% 12 16.9%
Parti Keadilan Rakyat (PKR) 117,100 17.4% 3 4.2%
Sarawak National Party (SNAP) 15,663 2.3% - 0.0%
Parti Islam Se-Malaysia (PAS) 9,719 1.4% - 0.0%
Pakatan Rakyat (now defunct) 277,329 41.2% 15 21.1%
Independents 20,064 3.0% 1 1.4%
Parti Cinta Malaysia (PCM) 2,895 0.4% - 0.0%
Others 22,959 3.4% 1 1.4%
Total 672,667 100.0% 71 100.0%
Election Commission
Popularity of the new Chief Minister. CM Adenan has been the Chief Minister for
almost 2 years since he took the oath of office in Feb 2014. His predecessor, Tan Sri
Abdul Taib Mahmud, who is also the longest serving Chief Minister in Malaysian
history, now helms the role of Sarawak’s Yang di-Pertua Negeri (i.e. Governor). A
survey conducted by independent opinion research firm Merdeka Centre in April 2015
depicts the popularity of CM Adenan amongst Sarawakians who has an approval rating
of 74%, higher than the 68% for the overall Sarawak State Government.
Figure #6 Satisfaction survey with the Sarawak Chief Minister
Merdeka Centre
BN won the previous
Sarawak Elections with a
two-third majority
CM Adenan is popular with a
high approval rating of 74%
HLIB Research | Sarawak Elections
www.hlebroking.com
Page 5 of 12
15 February 2016
Figure #7 Satisfaction survey with the Sarawak State Government
Merdeka Centre
An uphill battle for the opposition. Sarawak’s redelineation exercise by the EC was
passed in Parliament last Dec which will see the number of state constituencies for the
upcoming polls increased by 11 to 82 from the current 71. Out of the 11 new seats, 10
are considered rural or semi -rural areas which traditionally, have been BN stronghold
areas. The strength of the opposition DAP and PKR on the other hand, are in the urban
seats. Apart from trying to penetrate the rural seats, the key challenge for the
opposition is to avoid multi cornered fights. The newly formed Pakatan Harapan
opposition coalition consists of DAP, PKR and PAN while PAS and SNAP remain
standalone. Unless a consensus can be achieved between all opposition parties to
ensure straight fight against BN in every seat, a fragmented opposition is unlikely to
gain much traction during the polls. CM Adenan on the other hand, has claimed that
BN has resolved the conflicting seat allocation between its component parties.
Figure #8 New state constituencies
New Constituency Code Constituents Ethnic majority
Batu Kitang N13 20,819 Chinese
Stakan N17 12,761 Iban
Serembu N18 8,965 Bidayuh
Bukit Semuja N23 12,753 Bidayuh
Gedong N26 6,712 Malay / Melanau
Kabong N40 9,157 Malay / Melanau
Tellian N57 8,698 Malay / Melanau
Bukit Goram N63 11,459 Iban
Murum N66 7,648 Orang Ulu
Samalaju N70 12,927 Iban
Mulu N78 8,048 Orang Ulu
Election Commission, Wikipedia
BN likely to retain control. The consensus view amongst political analysts is that BN
will likely retain control of Sarawak in the upcoming polls. A renowned analyst on
Malaysian politics, Professor James Chin of the Asia Institute, University of Tasmania
commented in his recent article, Sarawak 's "Wayang Kulit", that “There is little doubt
that Adenan and Sarawak BN will win big in this year’s vote. In the last state election,
Sarawak BN won 55 of 71 seats. Thirteen of the 16 seats won by the opposition were
in urban, largely Chinese-majority constituencies. A repeat is expected in the 2016
race.” This stance is also echoed by Ibrahim Suffian, Director of the Merdeka Centre
who commented “Given high rating for the CM and the state, it gives us an ink ling of
how they will vote. It looks quite positive at the moment...”
The upcoming polls will see
11 new constituencies, 10 of
which are rural
Political analysts feel that
BN is likely to retain control
in the polls
HLIB Research | Sarawak Elections
www.hlebroking.com
Page 6 of 12
15 February 2016
Politics of developmentalism
Churning the feel good factor. We expect positive news flow on Sarawak’s project
implementations to gain momentum as the polls draw closer. Several academic papers
on Sarawak politics suggest that a party’s control over state finances has been an
essential ingredient in winning support at the polls. They argued that in the months
running up to the elections and during the campaign period, promises for funding,
especially for infrastructure projects such as roads increases. This phenomenon has
been termed as the “politics of developmentalism”.
A “Sarawak Election” Budget. Budget 2016 which was tabled in Oct last year
contained many measures targeted at Sarawak. Opposition leaders such as Selangor
Menteri Besar Azmin Ali and Penang Chief Minister Lim Guan Eng both said that
Budget 2016 was clearly an attempt by BN to win the upcoming Sarawak Elections.
Their views were surprisingly echoed by Deputy Prime Minister Datuk Seri Ahmad
Zahid. Budget 2016 saw a specific section that was dedicated towards “intensifying
development in Sabah and Sarawak” with 7 key measures. These are (i) implementing
the RM29bn Pan Borneo Highway, (ii) GST exemption for Rural Air Services routes,
(iii) interest free loans for building longhouses, (iv) RM70m fertiliser subsidies for hill
paddy farmers, (v) RM260m to for price uniformity programmes, (vi) RM115m for the
Special Programme for Bumiputera and (vii) 1Malaysia Mobile Clinics in the interior
areas of the states. Apart from these directly mentioned measures, other nationwide
initiatives that are likely to benefit Sarawak are those that are rural development centric
such as the upgrading of 700km of roads (RM1.4bn) and provision of rural
electrification and water supply (RM878m).
The twin pillars of Sarawak’s development. The grouse that Sarawak’s development
has lagged behind its Peninsular counterpart has always been an issue brought up
during elections. Within Sarawak itself, development tends to be centred along the
coastlines while its inlands remain rural with minimal or improper road connectivity. A
survey by the Merdeka Centre highlights that Sarawakians consider “jobs creation” and
“improvement of public infrastructure in rural areas” as the 2nd and 3rd most important
issues requiring attention from the State Government. Judging from the demands of
voters, we have identified two main pillars of development that we expect the
Government to push Sarawak. They are (i) the industrialisation of Sarawak’s economy
via the SCORE which would lead to more jobs creation and (ii) implementation of the
Pan Borneo Highway which would form the backbone of its transport connectivity. We
explore these two pillars in the following section.
Figure #9 Issues that need attention from the State Government
Merdeka Centre
News flow on projects to
gain traction prior to the
polls
Budget 2016 placed strong
emphasis on Sarawak
Jobs and infrastructure are
the key areas that voters
want the State Govt to
address
HLIB Research | Sarawak Elections
www.hlebroking.com
Page 7 of 12
15 February 2016
SCORE: Sarawak’s industrialisation drive
SCORE for Sarawak. The Sarawak Corridor of Renewable Energy (SCORE) is one of
the five growth nodes in Malaysia implemented by the Government. With a
development horizon of 22 years (2008-2030), SCORE aims to secure targeted
investments totalling RM334bn. Its geographical coverage stretches from Tg Manis to
Samalaju and into the hinterlands, covering a total area of 70,000km sq (56% of
Sarawak). The game plan for SCORE is to transform Sarawak into a high income state
by industrialising its economy via the efficient utilisation of its natural resources and
harnessing its potential for clean and affordable energy.
Figure #10 Geographical coverage of SCORE
RECODA
Investments pouring in. In 2014, Sarawak ranked the 2nd highest in terms of direct
investments with a total of RM9.6bn from 18 approved projects. The bulk of these
investments were foreign based at RM8.4bn (88%). This was largely driven by the
SCORE which has amassed investments totalling RM32.9bn from 2008 to 2014, with
RM27bn directed to the Samalaju Industrial Park.
Figure #11 Approved investments into SCORE
Company Investment Location RM bn
Tokuyama Polysilicon plant Samalaju 8.4
Sarz Al Yahya Corporation Nipa palm plantation and sap processing Tg Manis 4.0
Sakura Ferroalloys Manganese alloy smelter Samalaju 3.4
Sea Party international Aquaculture Tg Manis 2.0
Press Metal Aluminium smelter Samalaju 1.8
OM Materials Manganese & ferrosilicon alloy smelter Samalaju 1.5
Malaysia Phosphate Additives Integrated phosphate complex Samalaju 1.0
Asia Advanced Minerals Metal silicon plant Samalaju 0.7
Pertama Ferroalloys Manganese & ferroalloy smelter Samalaju 0.5
RECODA, Oxford Business Group
Attractiveness of cheap energy. As depicted above, most of the industries that have
set up in SCORE are those that are energy intensive. The appeal of SCORE to these
industries stems from the state’s availability of cheap electricity that is being harnes sed
from Sarawak’s rivers via hydro plants. According to Sarawak Energy, there are plans
to build a total of 12 hydro plants from 2008-2020 which would add 7000MW in power
generating capacity (excluding the recently completed 2400MW Bakun Dam).
SCORE is the key to
Sarawak’s industrialisation
drive
Sarawak had the 2nd highest
direct investments amongst
states
Sarawak intends to increase
generation capacity by
7000MW…
HLIB Research | Sarawak Elections
www.hlebroking.com
Page 8 of 12
15 February 2016
Figure #12 Planned hydro plants in Sarawak from 2008-2020
Sarawak Energy
Support infrastructure needed. The electricity generated from these plants is mainly
located in the inlands of Sarawak while its users are largely located along the
coastlines. This implies that significant investments must also be made for
transmission lines to channel the electricity from source to users. In 2013, Sarawak
Energy implemented the 500kv Backbone Transmission Line Project for RM619m
which was awarded to Sarawak Cable (BUY, TP: RM2.49). We understand that there
could be another RM500-600m worth of 500kv transmission line jobs that could be
rolled out by Sarawak Energy this year. Apart from transmission lines , roads leading to
these dams must also be built as accessibility into the inlands are rather limited. For
example, several access road packages to the 900MW Murum Dam had to be built
(IJM completed a package worth RM247m) for logistical reasons during the dam’s
construction.
The Pan Borneo Highway
From humble beginnings… The origins of a trunk road connecting Sarawak and
Sabah with Brunei in between dates back to the 1960s in what was then known as the
Trans-Borneo Highway. In the 1970s there were growing calls for improved road
connectivity which led Malaysia, Brunei and Kalimantan, Indonesia to develop a plan
for a highway along Borneo’s coastline. This would eventually be known as the Pan
Borneo Highway (PBH). Today, Sarawak’s major trunk road system is the Federal
Route 1 which forms part of the PBH. However, the road is largely a 2-lane single
carriageway. Only 144km (13%) of the roads from Sematan to Lawas are 4 -lane dual
carriageways. This makes travelling by road in Sarawak a daunting time consuming
task with a journey from Sematan to Miri currently taking 19 hours.
…to Sarawak’s mammoth project. To expedite development in East Malaysia, Prime
Minister Dato Seri Najib Tun Razak officially launched the Sarawak stretch of the PBH
in March 2015 with the appointment of Lebuhraya Borneo Utara (LBU) as the Project
Delivery Partner (PDP). Implementation of the PBH was also reaffirmed in Budget
2016 which will see an allocation of RM16.1bn for the Sarawak stretch and RM12.8bn
in Sabah. We reckon that the PBH will be one of the most anticipated projects to kick
off running up to the state elections. Upon completion, the PBH will become the
transportation backbone of Sarawak, akin to what the North South Expressway is for
Peninsular Malaysia. With the PBH, travel time from end-to-end will be reduced from
19 hours to 12 hours and will also be toll free.
… which will require more
transmission lines and
access roads
Idea of the PBH backdates
to the 1960s
PBH officially launched by
PM Najib last year, project
reaffirmed in Budget 2016
HLIB Research | Sarawak Elections
www.hlebroking.com
Page 9 of 12
15 February 2016
Figure #13 Spin-offs from the Pan Borneo Highway
Lebuhraya Borneo Utara
Proposed alignment. Once completed in 2023, the Sarawak PBH will have a total
length of 1,089km. The highway’s main section begins at Tg Datu in the South West of
Sarawak and ends at Miri in the North East. In between these two points, the PBH will
cover areas such as Sematan, Samarahan, Sri Aman, Betong, Sarikei, Sibu and
Bintulu. Commencement of this main section is slated to begin sometime this year. The
other sections of the PBH will be at Limbang and Lawas which are across the other
end of Brunei and are targeted to begin only in 2018.
Some works have started. Within the PBH’s main section, works have begun on 2
stretches last year which are undertaken by 2 unlisted Sarawakian contractors. The
43km section from Nyabau to Bakun was awarded to a subsidiary of Shin Yang
Corporation and scheduled for completion in 2017. On the other hand, the 40km route
from Tg Datu to Sematan was dished out to a subsidiary of Samling Group and
targeted to be finished in 2018.
Figure #14 Alignment of the Sarawak Pan Borneo Highway
Lebuhraya Borneo Utara
PBH will be Sarawak’s
transportation backbone
Works on 2 stretches have
been awarded and started
HLIB Research | Sarawak Elections
www.hlebroking.com
Page 10 of 12
15 February 2016
Figure #15 Stretches of the Pan Borneo Highway
Highway stretch Status KM Start Finish
Nyabau - Bakun Awarded 43 2015 2017
Tg Duta - Sematan Awarded 40 2015 2018
10 packages - main section Tendering 740 2016 2023
Limbang - Lawas - Merapok Not called 96 2018 2023
Other sections Not called 26 n.a. n.a.
Already upgraded Completed 144
Total length of Sarawak PBH 1,089
Lebuhraya Borneo Utara, HLIB estimates
Imminent take off this year. Based on LBU’s website, contractor prequalification was
called in Sept 2015 for 10 packages of the main stretch. Our channel checks reveal
that, on the average, each package is worth circa RM1bn. The scope of works involve
(i) upgrading the current 2-lane single carriageway to a 4-lane dual carriageway, (ii)
upgrading existing bridges to modern ones and (iii) proper rest stops. Media reports
have stated that the first 2 packages could be dished out by LBU sometime in March. If
true, this timing would allow the ruling coalition to garner “political brownie points”
amongst Sarawakians prior to the rumoured state polls in April. The remaining 8
packages are targeted to be awarded in June, Sept and Nov this year.
Who’s in the running? The prequalification documents by LBU state that bidders
must fulfil the 70% Sarawak equity requirement. While the official list has not been
released by LBU, we understand that 17 consortiums (mostly JVs between Sarawak
and Peninsular companies) have been prequalified to bid for the 10 packages. Our
channel checks indicate that the JV between Naim Holdings (not rated) and Gamuda
(BUY, TP: RM4.85) is in the lead for one of the early packages. Other prequalified JVs
involving listed contractors that we managed to tabulate include Cahya Mata Sarawak
with Bina Puri (both not rated), Zecon (not rated) with Kimlun (BUY, TP: RM1.56) and
KKB (not rated) with WCT (BUY, TP: RM2.23). We also gather that the following
contractors have been prequalified with their respective partners – IJM (BUY, TP:
RM3.86), MRCB (BUY, TP: RM1.63), Sunway Construction (BUY, TP: RM1.59),
Mudajaya (HOLD, TP: RM1.14), Hock Seng Lee (HOLD, TP: RM2.04) and Mitrajaya
(BUY, TP: RM1.95).
10 packages of the PBH to
be awarded this year
Potential winners not limited
to Sarawakians but also
Peninsular players
HLIB Research | Sarawak Elections
www.hlebroking.com
Page 11 of 12
15 February 2016
Stock Picks
Sarawak Cable (BUY, TP: RM2.49)
SCable is a key beneficiary of Sarawak’s generation capacity ramp up. As earlier
mentioned, Sarawak Energy is expected to roll out RM500 -600m worth of 500kv
transmission line projects this year. SCable’s ability to secure close to RM1bn worth of
transmission line jobs since FY13 validates our view that it is in a polar position to
participate once these projects are rolled out. This argument is even more concrete
after taking into account that Sarawak Energy is the 2nd largest shareholder (16.5%) of
SCable. Apart from that, SCable (via its structural steel arm Sawarja Timur) is looking
to supply guardrails and lamp poles for the PBH. We see broad parallel traits between
SCable and Cahya Mata Sarawak (CMS) in that (i) both are beneficiaries of Sarawak’s
development and (ii) have shareholding structures that are linked to former Chief
Minister Taib Mahmud and his family. If investors like CMS as a Sarawak play, SCable
offers a much cheaper exposure with P/E valuations at 50% discount to the former.
Hock Seng Lee (HOLD, TP: RM2.04 )
We reckon that HSL stands out as one of the top contenders to secure one of the 17
PBH packages. Given the swampy terrain of Sarawak, HSL will be able to leverage on
its marine engineering expertise to execute the job. Although HSL’s orderbook of
RM770m is thin (1.3x cover ratio), securing a package of the PBH would provide the
much needed boost, potentially doubling it assuming a contract sum of RM1bn and
70% stake. We have not priced in any contract wins from the PBH. Our TP is raised
from RM1.75 to RM2.04 as we tag a higher P/E multiple of 14x (from 12x) to reflect the
impending upswing in Sarawak job flows. While acknowledging HSL’s healthy balance
sheet and commendable execution, we feel it is difficult to advocate a Buy rating in
view of its flattish earnings outlook over the near term.
Other beneficiaries not within our coverage
Although not within our coverage, we highlight CMS as a potential Sarawak election
play as it stands to potentially benefit from the PBH via (i) the supply of aggregates and
(ii) its JV with Bina Puri securing construction works. It is also a direct beneficiary of
Sarawak’s development given its monopoly of cement in the state. On the other hand,
Naim Holdings (JV with Gamuda) is touted to be the frontrunner for one of the earlier
PBH packages. Other names include TRC Synergy which is (i) the only Peninsular
based contractor with a UPK Class A licence in Sarawak enabling it to undertake state
funded jobs and (ii) one of the few Peninsular players that has executed quite a sizable
amount of work in Sarawak (RM1bn). Lastly, we highlight Sarawak logistics player
Harbour Link Group which should benefit from the state’s development resulting to
greater demand for project cargo logistics.
Figure #16 Potential Sarawak Election plays
Stock Mkt Cap (RM m)
Price (RM)
Target (RM)
Rating FYE P/E P/B
ROE (T1) Yield (T1) CY15 CY16 T1 T2
SCable 469 1.48 2.57 BUY Dec 12.1 8.6 1.4 1.3 12.4% 2.5%
HSL 1,061 1.93 2.04 HOLD Dec 14.2 13.2 1.6 1.5 11.9% 1.4%
CMS 5,404 5.03 NA Not Rated Dec 23.1 18.1 2.7 2.5 11.7% 1.9%
Naim 588 2.48 NA Not Rated Dec 11.0 8.6 0.5 0.5 4.0% 1.5%
TRC 175 0.365 NA Not Rated Dec 7.3 8.5 0.5 0.5 7.0% 2.7%
Harbour 491 2.70 NA Not Rated June 8.4 8.7 NA NA 20.0% 2.4%
HLIB estimates
Note: T1 refers to most immediate forecast year, T2 refers to the year after T1. For “non-rated” stocks, estimates based on consensus.
HLIB Research | Sarawak Elections
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15 February 2016
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Equity rating definitions
BUY Positiv e recommendation of stock under coverage. Expected absolute return of more than +10% ov er 12-months, with low risk of sustained downside. TRADING BUY Positiv e recommendation of stock not under coverage. Expected absolute return of more than +10% ov er 6-months. Situational or arbitrage trading opportunity . HOLD Neutral recommendation of stock under coverage. Expected absolute return betw een -10% and +10% over 12-months, with low risk of sustained downside. TRADING SELL Negativ e recommendation of stock not under coverage. Expected absolute return of less than -10% ov er 6-months. Situational or arbitrage trading opportunity.
SELL Negativ e recommendation of stock under coverage. High risk of negative absolute return of more than -10% ov er 12-months. NOT RATED No research coverage and report is intended purely for informational purposes.
Industry rating definitions
OVERWEIGHT The sector, based on weighted market capitalization, is expected to have absolute return of more than +5% ov er 12-months. NEUTRAL The sector, based on weighted market capitalization, is expected to have absolute return betw een –5% and +5% over 12-months. UNDERWEIGHT The sector, based on weighted market capitalization, is expected to have absolute return of less than –5% ov er 12-months.