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

- The consolidation of the newly-acquired Universal Cable (M) Bhd (UCMB) and Leader Cable Industries Bhd (LCIB) was completed last month. This follows the approval by shareholders at an EGM held on 13 Dec.

- The acquisitions are positive as it strengthens SCable’s foothold as the leading integrated cable supplier in Malaysia with an expanded capacity and product mix (see Exhibit 1).

- We foresee a strong FY15F performance with progressed recognition from its combined outstanding order book of ~RM1.9bil. Notably, contributions from its 500kV job would come in stronger this year.

- But more importantly, the consolidation fortifies Scable’s bids for upcoming Tenaga Nasional Bhd (TNB) jobs in Peninsular Malaysia.

- TNB is expected to call for tenders soon with jobs worth about RM1.2bil per annum (distribution and transmission lines). The consolidated group is wellpositioned to secure these jobs as it has the largest capacity among 13 players qualified by TNB.

- Previously, TNB jobs contributed to ~30% (or RM240mil) of the two acquired companies’ revenue annually.

- We understand that SCable’s status as a bumi company may place the consolidated group in a better position to secure these jobs.

- Just last month, SCable’s subsidiary Trenergy Infrastructure Sdn Bhd had secured a RM217mil transmission job in Pengerang from Petronas. While the award may have come from Petronas, the cables supplied have to meet TNB’s requirements.

- Apart from TNB, other upcoming jobs include those for the LRT3 and RAPID projects. SCable is in a good position as it will be the sole producer of 275kV underground cables required for these projects.

- As at end-Oct, SCable and the two companies have an outstanding order book of RM1.3bil and RM578mil, respectively (See Exhibit 2). SCable currently has a tender book of ~RM700mil.

- Given its expanded capacity and widened product mix, we expect margins for its cable division to improve. The group has also implemented strategies to improve efficiency by consolidating operations of its various plants. Maintain BUY.

Source: AmSecurities