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Monday, February 29, 2016

Sarawak Cable - Finishing to a record year

Sarawak Cable - Finishing to a record year

Author: kltrader   |   Publish date: Mon, 29 Feb 2016, 12:18 PM 

Results

  • SCable reported 4QFY15 results with revenue of RM423m (+353% YoY, +10% QoQ) and core earnings of RM11m (4QFY14: -82m loss, +145% QoQ).
  • Full year FY15 core earnings totalled RM40m, compared to a -RM79m loss in FY14 (after stripping out negative goodwill of RM103m from the acquisition of Leader Universal)

Deviation

  • FY15 core earnings was inline with our forecast (+3%) and consensus (-1%).

Dividends

  • Final dividend of 5 sen was declared, doubling up from the 2.5 sen last year.

Highlights

  • Stark improvement. SCable’s significant results turnaround YoY was due to the maiden contribution to the cable division from the acquisition of Leader Universal. The core loss last year was largely due to impairment charges (RM24m) on its construction arm Trenergy Infra due to cost overruns.
  • Electrifying prospects. SCable has tendered for over RM1bn in transmission line jobs. We understand that parentco Sarawak Energy will roll out another RM600m in 500kV transmission lines next year. In our view, SCable is in a polar positon to secure this job given its track record with the current 500kV line. SCable is also aiming to supply 275kV cables for RAPID (including construction) and 132kV cables for the MRT 2 (Line 1 was also supplied by them).
  • Indirect beneficiary of Pan Borneo. The impending roll out of the Pan Borneo Highway (Sarawak stretch) should indirectly benefit SCable as it intends to supply guardrails and lamp poles via its structural steel arm, Sawarja Timur.

Risks

  • High net gearing (due to acquisitions) at 162%. Efforts to reduce net gearing include a recent proposed 10% private placement and sale of its helicopter aerial services (APL).

Forecasts

  • No changes as the results were inline.

Rating

  • Maintain BUY, TP: RM2.49
  • SCable has strong growth potential driven by acquisitions, superior orderbook cover and a new earnings stream from its hydro plant.
  • The impending Sarawak Election, touted to be in April, is an added booster as investors scavenge for such plays.
  • SCable is also a cheaper proxy to Sarawak’s growth theme with P/E valuations at a 50% discount to CMS.

Valuation

  • Our SOP based TP of RM2.75 implies FY16-17 P/E of 13.1x and 10.4x respectively.
Source: Hong Leong Investment Bank Research - 29 Feb 2016

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