AmWatch - Sarawak Cable : Strong 1Q from newly-acquired companies and jobs at hand BUY, 1 Jun 2015

STOCK FOCUS OF THE DAY

Sarawak Cable : Strong 1Q from newly-acquired companies and jobs at hand                                      BUY

We maintain BUY on Sarawak Cable Bhd (SCable) with an unchanged fair value of RM1.70/share – pegged to 9x FY15F PE. SCable reported a strong set of numbers for 1QFY15 due to contributions from its project at hand as well as maiden contributions from Leader Cable and Universal Cable which it acquired late last year.

SCable reported 1QFY15 earnings of RM12mil, which makes up 21% of our full-year estimate. This is a marked improvement from RM1mil recorded a year earlier. Topline jumped to RM343mil from RM79mil a year earlier (and vs. 4QFY14’s RM62mil). It also declared a first interim dividend of 1 sen.

The marked improvements in revenue can be seen for all of its three main divisions – cables and conductors; galvanised steel products and steel structure; and transmission lines construction (projects). Its cable division reported a profit of RM5mil (vs. RM1mil a year earlier), on the back of RM169mil in sales (up by 9x YoY). This can be mainly attributed to maiden contribution from the newly acquired subsidiaries. The consolidated gross margin was 3% (vs. 6% last year).

The new subsidiaries were not the only growth drivers, as SCable’s projects division saw sales tripled YoY to RM147mil, with a profit recognition of RM14mil. This mainly came from progressive contribution from its 500kV job (which recognition was minimal previously). All in, SCable reported a core net margin improvement of 3.5% vs. 1.8% earlier.

Moving forward, earnings will continued to be supported by its outstanding order book of ~RM1.8bil. Prospects remain bright with a tender book of ~RM1bil. On the longer term, the planting up of Baram and Baleh dams will ensure continued job flow for SCable. With a strong set of 1Q numbers, our forecast are unchanged. SCable is currently trading at 7.6x FY15F PE.

Others :

Lion Industries : Headwinds persist in 3Q              HOLD

RHB Capital : A challenging 1Q    HOLD

Telekom Malaysia : Missed consensus   HOLD

Banking Sector : Softer leading indicators post GST in April 2015 (GST)     NEUTRAL

Banking Sector : Further rise in foreign holdings in MGS in April 2015 (MGS)                                         NEUTRAL

QUICK TAKE

Plantation Sector : Newsflow for week 25 to 29 May       OVERWEIGHT

NEWS HIGHLIGHTS

Airline Sector : MAS CEO’s plans seen promising

Construction Sector : Foreign firms eye tunnel job

DISCLAIMER:

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