Sunday, 28 August 2016

The Future of Sarawak Cable [SCABLE]

The quarter results for SCABLE was released last week and it definitely did not look good for the company. The profit dipped more than 50% and there was certainly a few factors which caused the company that downfall.

According to Hong Leong Bank Investment Research, the outcome was as follows.
  • SCABLE reported 2QFY16 results with revenue of RM346.2m (+14% YoY, -5% QoQ) and earnings of RM4.9m (-58% YoY, +38% QoQ).
  • 2Q results were lower YoY due to margin compression for both the cable and construction division. The QoQ improvement resulted from the cable division swinging back to profitability.
  • Cumulative 1H earnings summed to RM8.5m, falling -64% YoY.

The highlights for SCABLE
  • Cables recovering. The cable division returned to the black in 2Q with PBT of RM7.3m vs loss of -RM3.7m in the previous quarter due to delayed orders from Tenaga. New orders from Tenaga have started contributing in 2Q and should further improve in 2H but likely at a slower rate than what we had earlier envisaged.
  • Weak margins for construction. 1H construction PBT margins suffered a YoY contraction from 10.7% to 4.4%. This was due to certain variation orders which have yet to be approved but its costs were recognised upfront.
  • Hopeful for more contracts. SCable has tendered for over RM1bn in transmission line projects. We understand that parent-co Sarawak Energy will roll out another RM600m in 500kV transmission lines next year. In our view, SCable is in a decent position 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 MRT2 (MRT1 was also supplied by them).

For further information, you can read up on the full report here.

The quarter results were released on Tuesday, 23-Aug-2016. The share prices fell 3.10% the following day after the results were made known to the public. The drastic fall of 4 cents in a day pulled the share price to close at 1.25.

To many, the outcome from the second quarter is well below par and many would have expected that this company would be doing well and gaining more local contracts after the Sarawak election. There was not much movement for the share price on Thursday, 25-Aug-2016 till around 3.41pm when there was more selling and it dragged the share down to its opening value at 1.25. The share closed weaker with a loss of 1 cent to close at 1.24 or 0.80% down for the day.

With the HLIB research released to the public and the sentiments did not seem positive, the share price of the SCABLE share seems to drop further as HLIB forecasted the TP at 1.30. Things started off slow on Friday and even slower for SCABLE. Things however got a bit interesting at around 4.15pm when the buying started to kick in and eventually moved the share price up 4 cents or 3.23% to close at 1.28.

In my opinion, this is a money making company and the first half of 2016 might not be favourable to them thus far. There is lots of opportunities for new contracts and more work from Tenaga Nasional to say the least. The sharp buying at the end of Friday might be a bounce back or will it be the right beginning for the SCABLE company? I would feel in these couple of months, the target price for the SCABLE share will be hovering around 1.40 and if the new contracts were to be announced by the company, we should see the share price around 1.55. I believe with the Sarawak Elections a few months back, there is a fair bit of expectation by the investors on this share. For me, it is still worth the investment and there should be good profits in the next half of 2016.

Happy Trading!