STOCK FOCUS OF THE DAY
Sarawak Cable : Prospects in the East and West BUY
We maintain BUY on Sarawak Cable Bhd (SCable) with an unchanged SOP-based fair value of RM1.70/share, which implies an FY15F PE of 8.5x.
In this report, we look at some of the upcoming transmission/distribution jobs in the Peninsula and East Malaysia that may benefit SCable. In West Malaysia, Tenaga Nasional Bhd’s (TNB) capex plans will provide continued job flow for SCable. TNB is expected to call for tenders in 1QFY15F with cable requirements for distribution lines expected to amount to RM1.2bil p.a. This does not include cable supply and turnkey jobs for transmission lines.
TNB will spend ~RM4bil p.a. in capex over the next three years to upgrade and expand the transmission & distribution networks. As an integrated supplier, SCable is in good position to supply cables and install power lines. Notably, the tender for TNB’s 500kV Ayer Tawar overhead line had just closed with the award expected within six months. We understand that there are seven packages for the 500kV line worth ~RM2bil, while another 500kV connecting line is being planned (see inside pages).
Apart from TNB jobs, SCable is also in a good standing to secure jobs for the upcoming LRT3 and RAPID projects. Over at the East, Sarawak Energy Bhd’s (SEB) continued capex plans will ensure job flow sustainability over the next decade. On a more immediate note, we understand that three players have been shortlisted for Balingian’s 275kV transmission line (worth ~RM200mil) with the winner expected to be announced this year.
SCable currently has an outstanding order book of ~RM2.2bil while its tender book is ~RM700mil. While we expect FY14F core earnings to be muted, we should see earnings recovery in FY15F given the stronger progress billings from its 500kV job as well contributions from the RM493mil Balingian and RM257mil Pengerang jobs.
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