- We maintain BUY on Sarawak Cable Bhd (SCable) with an unchanged SOP-based fair value of RM1.70/share, which implies a PE of 9x FY15F EPS.

- SCable reported a net profit of RM0.4mil for 3QFY14 (flattish YoY, -70% QoQ), on the back of RM82.4mil in revenue (+105% YoY, +4% QoQ).

- This resulted in a 9M net profit of RM2.7mil (+102% YoY), which was below our previous forecast expectations. For the 9M period, revenue grew by 68% to RM246.2mil from RM146.3mil a year earlier.

- Contract revenue remained as the biggest contributor to the group’s topline at RM147.6mil (representing 60% of total revenue). Nevertheless, the division continued to be loss-making, although positively, the losses narrowed to RM0.2mil from RM1.7mil.

- Notably, we understand that there continued to be some delay in the recognition from the 500kV backbone line job worth RM620mil it secured last year. Nevertheless, we believe that a bulk of the 500kV job will come in strongly in FY15F.

- Despite that, SCable continued to see strong sustained sales for both its cables and galvanised steel product divisions.

- Its cable division’s revenue grew 51% YoY to RM78mil for the 9M period. However, its segment profit was flat at RM3.8mil due to lower margin (5% vs. 7.4% a year earlier).

- Its galvanised steel product division reported a profit of RM1.5mil (vs. a breakeven level a year earlier) on the back of a 17% revenue growth to RM20mil.

- We have revised down our FY14F earnings by 36% to reflect the delay in recognition of earnings from its 500kV job. Nevertheless, we maintain our FY15F numbers for now.

- For 4Q, we expect positive contributions from the consolidation of Universal Cable (M) Bhd and Leader Cable (LCIB) upon the completion of the acquisitions for RM210mil. SCable is expected to call for an EGM soon for the proposed acquisitions with the deal expected to be completed by year-end.

- We remain upbeat on SCable as the acquisitions will put it in a good stead to bid for cable and transmission jobs in Peninsular Malaysia given its fortified market position. Our investment thesis of improved margins moving forward remains intact. Maintain BUY.

Source: AmeSecurities