• SCABLE is one of the HLIB construction picks with an institutional target price of RM2.49 (based on SOP), or 66% upside. Following the news that Sarawak State Legislative Assembly will be dissolved on April 11 (to pave way for the 7 May election), SCABLE’s share price has fallen 11% from a monthly high of RM1.69 to close at RM1.50 yesterday, as the limelight on Sarawaklinked stocks tapered off in tandem with the market consolidation.
• Bright prospects ahead. We opine that current market consolidation offers opportunity for LT investors to accumulate SCABLE, given its undemanding valuation of 7.3x FY17 P/E (against 9x average HLIB smallcap construction), strong 2015-17 earnings CAGR of 27% and comfortable outstanding construction order book over RM1bn. Current share price is also cum 5 sen final dividend (ex-date: 29 June)
• Given SCBLE’s good track record, orderbook s hould increas e further in anticipation of further potential wins from the 275kV back-up power transmission line, 500kV backbone line, 275kV Pengerang Cogen Plant line and 132kV cables (for the MRT Line 2). The Pan Borneo Highway is another prospect as SCABLE intends to supply steel structures such as guardrails and lamp poles. Meanwhile, its 11MW mini hydro plant in Indonesia slated for commercial operation in June will provide steady recurring income to the group.
• Downside is limited. Technically, there could be some downside risks for the stock but we see strong supports near RM1.46 and RM1.41 (61.8% FR) as slow stochastic indicator is grossly oversold.
• After a brief sideways consolidation, we expect SCABLE to trend higher again. A decisive breakout above RM1.52 (200-d SMA) will spur prices to retest RM1.55 (10-d SMA) and RM1.66 (upper Bollinger band) levels before heading towards LT objective at RM1.73. Cut loss at RM1.40.
• Favourable risk to reward ratio with 15.3% upside against 6.6% downside. We see a good risk to reward ratio for investor with a theoretical entry price of RM1.50 given that the downside to the cut loss zone of RM1.40 is 10.0sen (-6.6%) while the upside to the LT target of RM1.73 is 23 sen (+15.3%).

Source: Hong Leong Investment Bank Research - 28 Apr 2016