Results

• SCable reported 3QFY15 results with revenue of RM384.9m (+367% YoY, +27% QoQ) and earnings of RM4.7m (up 10- folds YoY, -61% QoQ).

• Cumulative 9M earnings amounted to RM28.4m, a 9-fold jump from last year. Earnings for the 9M period have already surpassed all prior full year numbers since listing.

Deviation

• Revenue was inline with 9M meeting 76% of our full year estimates. However, despite record earnings, this fell short of our full year forecast at 65% (consensus: 56%).

Dividends

• None. Usually declared in 4Q.

Highlights

• Forex weighs in but… The earnings shortfall stemmed from the USD appreciation in 3Q which rose 16.5% during the quarter. SCable (via its newly acquired Leader Universal Cable) supplies cables to Tenaga on an annual contract basis. About 70-80% of the manufacturing costs are USD denominated which resulted to margin squeeze in 3Q.

• …new contracts repriced. Management highlighted that the cable supply contract to Tenaga has been largely fulfilled in 3Q. Subsequent contracts to Tenaga would be repriced to reflect a higher USD and will no longer be an issue in 4Q.

• Sizable orderbook backing. We estimate SCable’s construction orderbook to stand at RM1bn, translating to a superior cover ratio of 7.2x on FY14 construction revenue. Management guides that recognition on the 500kV Sarawak line and 275kV Pengerang Cogen Plant line will gather further momentum in 4Q.

• Prospects ahead. We understand that parent-co Sarawak Energy will roll out another RM600m in 500kV transmission lines next year. In our view, SCable is in a polar positon to secure this job given its track record with the current 500kV line. SCable is also aiming to supply 275kV cables for RAPID (including construction) and 132kV cables for the MRT Line 2 (Line 1 was also supplied by them).

Risks

• High net gearing (due to acquisitions) at 168%.

Forecasts

• We cut FY15 earnings by 10% to factor in the forex impact this quarter but leave FY16-17 unchanged.

Rating

• Maintain BUY, TP: RM2.57
• SCable has strong growth potential driven by acquisitions, superior orderbook cover and a new earnings stream from its hydro plant. The impending Sarawak elections are an added booster as investors scavenge for such plays.
• SCable is also a cheaper proxy to Sarawak’s growth theme with P/E valuations at a 41-53% discount to CMS.

Valuation

• Our SOP based TP of RM2.75 implies FY15 P/E of 21x but a more palatable 13.5x on FY16 once earnings kick in.

Source: Hong Leong Investment Bank Research - 27 Nov 2015