• Company profile. Sarawak Cable (Scable) is involved in several business segments, which include (a) power and telecommunication cables (b) galvanized products and steel structure, (c) transmission lines construction and (d) power generation, helicopter services and corporate services.

• Signs of stabilisation amid potential recovery of cable segment. Contribution of this business division to revenue improved strongly in 1QFY17 to 83.0% from 66% in FY16 (FY15: 52%) as market demand for cable products improved, reinforced by several exceptional orders received. Revenue of power and telecommunication cables segment grew 12.6% to RM856.6m in FY16 (FY15: RM760.6m). Also, this segment is the main contributor to the Group’s profit in 1QFY17.
   
• Proxy to Sarawak infrastructure play. Outlook remains steady as mega projects such as Pan Borneo Highway, TRX, MRT2, LRT3, coupled with the implementation of Bekalan Elektrik Luar Bandar (BELB) may spur the demands of cables in the local markets. Furthermore, Sarawak Energy Berhad (SEB) will be implementing budgeted projects to meet shortage of power supply within Sarawak. Scable expects transmission lines amounting to more than RM500m in value will be rollout by SEB in 2017.
   
• Technical outlook. Share price of Scable has been building a base around the RM1.10 level over the past six months. After the long consolidation, share price is now traded towards the SMA200 level, accompanied by healthy volumes. We expect buying interest to take more aggressive stance once the price advances above RM1.16. Price targets will be envisaged at around RM1.25-1.30, followed by a LT target of RM1.40. Meanwhile, support will be pegged around RM1.10-1.12, with a cut loss point located around RM1.07.

Source: Hong Leong Investment Bank Research - 6 Jun 2017