• HLIB has a BUY rating on SCABLE with an institutional target price of RM2.57, or 64.7% upside. SCable is an integrated power solutions provider (listed in May 2010) primarily involved in the manufacturing of power cables. However, via a slew of acquisitions post listing, SCable managed to expand its business portfolio to include fabrication of steel structures and construction of power related infrastructure. It also has a foothold in power generation via a mini hydro plant in Indonesia that will soon be commissioned.
• Proxy to Sarawak’s growth. To harness its cheap energy potential, Sarawak has identified 12 dams to be built. With Sarawak Energy no longer listed, SCable is a good proxy to the s tate’s power generation capacity growth via the supply of cables and construction of transmission lines. The Pan Borneo Highway is another prospect as SCable intends to supply steel structures such as guardrails and lamp poles.
• Peninsular potential. SCable is bidding to supply 275kV cables and transmission line construction at RAPID. Other opportunities in Peninsular Malaysia include supplying 132kV underground cables for the MRT Line 2 and the construction of substations for Tenaga.
• Recurring earnings stream. SCable holds a 20 year PPA to supply electricity to Indonesia’s national utility company via its 11MW Kombih3 hydro plant in North Sumatera. Tariffs have been revised upwards twice since 2012 and there is potential for a third adjustment in 2016. Commercial operation of Kombih3 is targeted for 1Q16.
• Scable is a proxy to Sarawak-election play. Thematically, with Sarawak’s election due by mid-June 2016, Sarawak stocks will attract attention from an expected acceleration in newsflow momentum.
• Risks. Net gearing is high at 144% due to the assumption of debts from the acquisitions and high working capital requirements.
• Ripe for technical rebound. The stock has been steadily trending upwards to 52-week high of RM1.79 (19 Nov) from a low of RM1.13 (25 Aug). In tandem with the broader market consolidation, Scable share prices had corrected 15.1% to a low of RM1.52 (30 Nov) before ending at RM1.56 last Friday. Key supports are RM1.52 and RM1.48 (123.8% FR).
• After a brief sideways consolidation, we expect Scable to trend higher again, from grossly oversold positions. A decisive breakout above RM1.62 (10-d SMA or 61.8% FR) will spur prices higher to retest RM1.69 (38.2% FR) and our LT objective at RM1.80 (upper Bollinger band) levels. Cut loss at RM1.47.
• Attractive risk to reward ratio with 15.4% upside against 5.8% downside. All in, we see a good risk to reward ratio for investor with a theoretical entry price of RM1.56 given that the downside to the cut loss zone of RM1.47 is 9 sen (-5.8%) while the upside to the LT target of RM1.80 is 24 sen (+15.4%).

Source: Hong Leong Investment Bank Research - 7 Dec 2015