News

• SCable announced that it has been awarded a 500kV and 275kV double circuit transmission line contract from the boarders of Pahang to Selangor. The job was awarded by Tenaga (BUY, TP: RM17.50) with contract value of RM55.9m.

Comments

• Smallish job win. This contract is SCable’s first job win announcement for the year. We estimate SCable’s construction orderbook to now stand at RM681m, down from RM929m at the beginning of the year. This implies a thinning cover ratio of 1.2x on FY15 construction revenue. The declining orderbook balance was due to high burn rate on its Balingan coal fired plant job coupled with lower than expected job wins.

• Revival from Baleh Dam? Last month, Sarawak Energy received the approval from the State Government to proceed with the construction of the Baleh Dam (1,285MW). With this job kicking off, SCable could be a potential beneficiary via the transmission line contracts. To recap, SCable previously undertook the 500kV transmission line job from Mapai Lachau-Todong in Sarawak. Sarawak Energy is the 2nd largest shareholder in SCable with a 16.5% stake.

Risks

• We do not see any unique risks with this job as transmission line contracts are within SCable’s normal business scope.

Forecasts

• Unchanged as YTD job wins are still within our FY16 orderbook replenishment assumption of RM250m.

Rating

Maintain HOLD, TP: RM1.30

• While SCable is a beneficiary of Sarawak’s massive power generation expansion plan, we remain cautious over its short term outlook due to its high net gearing and strong USD (i.e. flow through effect via copper cost).

Valuation

• Our SOP based TP of RM1.30 is based on (i) 10x mid-FY17 earnings, (ii) DCF valuation for its Kombhi3 hydro plant and (iii) full dilution from previously proposed 10% share placement.

Source: Hong Leong Investment Bank Research - 27 Oct 2016