- We maintain HOLD on Sarawak Cable Bhd with an unchanged sum-of-parts- (SOP) based fair value of RM1.70/share.

- The group posted flattish earnings of RM1.37mil for 1QFY14 (vs. RM1.3mil a year ago).

- While it only made up 5% of our full year estimates, we maintain our numbers as contributions from the 500kV backbone line will kick in stronger from 2QFY14 onwards.

- Top line grew by 35% to RM79mil due to higher contribution from ongoing projects (QoQ: +27%). Its projects revenue grew by almost 60%, and contributed to 68% of total revenue.

- Nevertheless, revenue for its power cables and galvanised steel divisions also grew by 3%-4%, respectively.

- Positively, there were no amortisations for jobs related to construction contracts in this quarter. As such, we expect margins to improve moving forward.

- Notably, we understand that recognition of the 500kV job (transmission package worth RM620mil) will only flow through strongly from 2QFY14 onwards due to gestation period.

- Moving forward, management indicates that it would focus on the supply of power cables and galvanised steel products, while its projects division is kept busy with the 500kV job (revenue recognition spread over three years).

- After all, while five dams are expected to be built in the state, any transmission packages would only come earliest in 2016.

- Until then, potential near-term jobs may include a transmission package to link the proposed Balingian coalfired plant (2x300MW) in Mukah to the grid.

- A re-rating catalyst for the group is the possibility of merger & acquisition activities to expand its revenue stream, which would further cement its position as the sole integrated power cable and transmission provider in the state.

- Based on the current price, Sarawak Cable is trading at 9x PE over FY15F EPS. Our slightly lower earnings were due to housekeeping adjustments. Maintain HOLD.

Source: AmeSecurities