-  We maintain BUY on Sarawak Cable Bhd with a SOPderived fair value of RM2.33/share.

-  We tweak our FY13F earnings downwards following the lower-than-expected 9M results that were announced yesterday. But we increase our FY14F-15F numbers by 2%- 6% to reflect higher recognition of the 500kv job.

-  Sarawak Cable posted 9MFY13 earnings of RM1.3mil, down by 73% from RM4.9mil a year earlier. This is due mainly to slow recognition of ongoing projects and weaker demand for galvanised steel products during the period.

-  This was partly offset by improved margins and better cost management for its power cable and conductor segment, which saw EBIT margins improving to 7% from 2% a year earlier.

-  However, there was also an exceptional loss RM0.5mil during 3QFY13 due to the amortisation of intangible assets. Adding the earlier amortisation of RM1.9mil in the preceding quarter, 9MFY13 core earnings would be at RM3.8mil.

-  The amortisation is related to projects with contract revenue that were acquired following its acquisition of Trenergy that was completed last year. Nevertheless, management guided that these should be one-off and should not be recognised further in 4QFY13.

-  We expect 4Q earnings to improve as Sarawak Cable would begin recognising revenue its 500kV backbone line job worth RM620mil. Works has already commenced last week.

-  According to channel checks, Sarawak Cable is expected to secure more transmission jobs in the state. Other potential jobs in the mid-term include the Tanjung Manis-Bintulu and Mambong-Kalimantan lines worth RM~400mil.

-  In our visit to Sarawak last week, we learned that Baram (1,200MW) and Balleh (1,300MW) dams are currently in the final feasibility stages while the Balingan coal-fired plant (600MW) is expected to be awarded by year-end. Sarawak Cable will be the main contender to link the new plants to the power grid.

-  We also understand that there are plans for a 2nd phase of th  500kV line, and another two 275kV lines to link up the various growth nodes within SCORE.

-  Despite the short-term hiccups, we continue to like Sarawak Cable as it is the only integrated power cable and transmission player in the state that will play a crucial role in powering up SCORE and Sarawak. Maintain BUY.

Source: AmeSecurities