- We reiterate our BUY call on Sarawak Cable (S Cable) with a higher SOP-derived fair value of RM2.50 per share (vs RM2.00/share previously).

- We tweaked our FY13-FY15 earnings higher as we expect S Cable to secure a number of transmission jobs in Sarawak; including the lucrative 500kV backbone power line in Sarawak (transmission package worth ~RM1b) from Sarawak Energy Bhd (SEB). With the 13th general elections behind us, we expect the long-delayed project, and others, to be awarded soon.

- We recently hosted a meeting for S Cable that was attended by institutional funds. With came away with a more upbeat view on S Cable, premised on:- (i) S Cable securing the 500kV backbone package, which is expected to be awarded by year-end; (ii) acceleration of state government’s rural electrical scheme (RES) to meet state’s original target of 95% by year-end (currently ~60%).

- After a long delay, the 500kV is expected to be awarded this year as there is urgency to meet the needs of power intensive industries, notably in SCORE. We understand that the award of the job is only awaiting state’s approval. We do not foresee any problem as S Cable is the biggest transmission EPC in the state; and SEB is a major shareholder of S Cable.

- Apart from the 500kV job, S Cable is expected to benefit from RES – as only 60% is completed and RM400m worth of jobs is expected to be tendered out this year. Note that S Cable is the dominant supplier of fabricated steel poles and cables; via units Sarwaja and Universal Cable respectively. We assume that S Cable will get 80% of the RES jobs to be tendered out this year. In anticipation, management indicates it has ramped up production with 100k pieces of poles currently in stock. In addition, S Cable is also eyeing a number of smaller transmission jobs with a potential total value of ~RM400m. This includes the Tanjung Manis-Bintulu and MambongKalimantan lines. S Cable currently has an order book of RM687m, with an outstanding amount of RM202m. We have a conservative order book assumption of RM1b for FY13F (including the 500kV line) to be progressively-recognised in FY13FFY15F. S Cable has risen 24% since GE13. Nevertheless, it is still trading at alluring forward PEs of 6x-10x on FY14F-FY15F EPS against solid financials (FY13F net gearing: 7.8%) and ROEs of 18%-24%.

Source: AmeSecurities