STOCK FOCUS OF THE DAY
Sarawak Cable : Focus on improving margins
BUY
We maintain BUY on Sarawak Cable Bhd (SCable) with an
unchanged fair value of RM1.70/share – pegged to 9x FY15F PE. Moving forward,
management’s strategy is to focus on securing jobs with better margins, instead
of order book growth.
With a tender book of ~RM1bil currently, the group is
targeting to secure RM300mil worth of jobs this year. While this is lower than
new order wins for the previous years (FY13: RM652mil, FY14: RM765mil), it
intends to bid aggressively for those with better margins in order to improve
profitability. To this end, SCable will leverage on its expanded capacity and
product mix following the acquisitions of Leader Cable and Universal Cable last
year. SCable’s key products with better margins include the new underground
275kV cables, of which it is the sole producer in the country. We understand
that there may be some requirements for these cable at Pengerang. Other
prospective jobs include:- (i) packages for TNB’s 500kV line in the Peninsula
cumulatively worth ~RM2bil; (ii) underground cables for 132kV lines in Petra
Jaya, Kuching; and (iii) TNB’s tenders for cable supply for distribution lines
amounting to ~RM1.2bil.
Management is also aiming to increase cable exports to
30%-40% of total production this year (from 20% currently) in order to
capitalise on the stronger USD. Key markets include the Middle East, Australia
Singapore, and Indonesia. SCable is also banking on its bumi status to bid for
TNB jobs. We understand tenders for the cable supply to distribution lines had
been delayed from 1QFY15 to 3QFY15.
Earnings will continue to be mainly supported by:- (i) peak
billings from the RM620mil 500kV backbone line job (completion in end-2015);
(ii) the RM493mil Balingian job; and (iii) RM257mil Pengerang job. Outstanding
order book was at ~RM1.8bil as at end-April. We maintain our numbers as we have
factored in improved margins in our model with an order book assumption of
RM260mil for FY15F. Further upside stems from better-than-expected margin
improvement. Risks include further delay in earnings recognition and
less-than-expected margin delivery.
Others :
MRCB : Land for refurbishment
proposal?
BUY
Westports Holdings : Potential reduction in O3 volume
HOLD
Banking Sector : Fitch unexpectedly affirms country rating (Fitch)
NEUTRAL
Banking Sector : May 2015 banking statistics reflective of
post-GST trend (GST)
NEUTRAL
Banking Sector : Sixth consecutive month of increase in
foreign holdings in MGS in May 2015 (MGS)
NEUTRAL
QUICK TAKE
Sime Darby : To develop industrial park in Byram, Nibong
Tebal HOLD
NEWS HIGHLIGHTS
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movement target
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RM5.9bil WCE highway project
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