News

• Secures Pan Borneo contract. SCable announced that it has been awarded a RM20.4m contract from Shorefield Sdn Bhd for the Pan Borneo Highway utility package.

Comments

• Smallish job win. This is SCable’s 2 nd contract announced for the year and we estimate its YTD job wins to stand at a meagre RM76m. We estimate SCable’s construction orderbook to now stand at RM702m, down from RM929m at the beginning of the year. As a result of an aggressive burn rate coupled with lacklustre job wins, SCable’s orderbook cover has contracted from 8.1x a year ago to a thin 1.2x currently.

• More from Pan Borneo? We understand that this recent contract involves the supply of road guard rails for the Pan Borneo Highway. Apart from that, SCable is also in negotiations to clinch a cable supply contract for the said highway. New cables are required for the relocation of existing ones that will be affected by the Pan Borneo Highway.

• Revival from Baleh Dam? In Sept, 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 2 nd

largest shareholder in SCable with a 16.5% stake.

Risks

• We do not see any unique risks with this job as structural steel contracts is are part of its usual business.

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 - 21 Nov 2016