- We maintain BUY on Sarawak Cable Bhd (SCable) with an unchanged fair value of RM1.70/share – pegged to 9x FY15F PE.

- We remain upbeat on the group’s prospects following a meeting with management last week. Moving forward, management’s strategy is to focus on securing jobs with better margins, instead of order book growth.

- With a tender book of ~RM1bil currently, the group is targeting to secure RM300mil worth of transmission jobs this year. While this is lower than new order wins for the previous years (FY13: RM652mil, FY14: RM765mil), it intends to bid aggressively for those with better margins in order to improve profitability.

- To this end, SCable will leverage on its expanded capacity and product mix following the acquisitions of Leader Cable and Universal Cable last year.

- SCable’s key products with better margins include the new underground 275kV cables, of which it is the sole producer in the country. We understand that there may be some requirements for these cable at Pengerang.

- Other prospective jobs include:- (i) packages for Tenaga Nasional Bhd’s 500kV line in the Peninsula cumulatively worth ~RM2bil; (ii) underground cables for 132kV lines in Petra Jaya, Kuching; and (iii) TNB’s tenders for cable supply for distribution lines amounting to ~RM1.2bil.

- Apart from that, management is also aiming to increase cable exports to 30%-40% of total production this year (from 20% currently) in order to capitalise on the stronger USD. Key markets include the Middle East, Australia Singapore, and Indonesia.

- SCable is also banking on its bumi status to bid for TNB jobs. We understand tenders for the cable supply to distribution lines had been delayed from 1QFY15 to 3QFY15.

- Earnings will continue to be mainly supported by:- (i) peak billings from the RM620mil 500kV backbone line job (completion in end-2015); (ii) the RM493mil Balingian job; and (iii) RM257mil Pengerang job. Outstanding order book was at ~RM1.8bil as at end-April. (See Exhibit 1 for outstanding order book breakdown).

- We maintain our numbers as we have factored in improved margins in our model with an order book assumption of RM260mil for FY15F. Further upside stems from better-than-expected margin improvement. Risks include further delay in earnings recognition and less-than-expected margin delivery. BUY.

Source: AmeSecurities Research - 1 Jul 2015