Room for improvement for Sarawak Cable’s results

KUCHING: Sarawak Cable Bhd ( Sarawak Cable) reported results for the second quarter of financial year 2016 ( 2QFY16) with revenue of RM346.2 million and earnings of RM4.9 million, which analysts peg as “better, but not enough.”

The research wing of Hong Leong Investment Bank Bhd ( HLIB Research) said the lower 2Q results year on year ( y- o- y) were due to margin compression for both its cable and construction divisions.

However, its quarter on quarter ( q- o- q) improvement resulted from the cable division swinging back to profitability.

Total cumulative earnings for the first half of 2016 (1H) summed up to RM8.5 million, which HLIB Research said was falling short y- o-y by 634 per cent.

“The cable division returned to the black in 2Q with a profit before tax ( PBT) of RM7.3 million against a loss of RM3.7 million seen in the previous quarter due to delayed orders from Tenaga Nasional Bhd,” it underscored.

“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.”

To note, Sarawak Cable’s 1H construction PBT margins suffered a y- o-y contraction from 10.7 per cent to 4.4 per cent.

The research house said this was due to certain variation orders which have yet to be approved but its costs were recognised upfront.

Regardless, HLIB Research was hopeful for the group to snag more contracts as Sarawak Cable has tendered for over RM1 billionn in transmission line projects.

“We understand that parentco Sarawak Energy Bhd will roll out another RM600 million in 500kV transmission lines next year.

“In our view, Sarawak Cable is in a decent position to secure this job given its track record with the current 500kV line.

“Sarawak Cable is also aiming to supply 275kV cables for the refinery and petrochemical nitegrated development project ( RAPID) and 132kV cables for the MRT2, as the MRT1 was also supplied by them.”

Nevertheless, HLIB Research cutits FY16 to FY18 earnings for Sarawak Cable by 15, 11 and 10 per cent respectively as it impute slower than expected order deliveries for the firm’s cables and lower construction margins.

“Apart from the weak results, we are increasingly cautious on its net gearing level and hence downgrade our rating from buy to hold,” it said, adding that it pegged a target price of RM1.30 per share for the group.