Southern Cable managing director Tung Eng Hai
PETALING JAYA: Southern Cable Group Bhd
(SCG) is expected to secure more contracts in the future following its new contract win worth RM172.6mil.
According to Apex Securities, the new contract could translate into an annual gross profit of RM8mil, equivalent to 5% of the research house’s forecasted group gross profit level.
The latest win is also expected to bump SCG’s orders in hand to RM871.8mil.
To recap, the new long-term contract involves SCG to supply cables and conductors to East Malaysia for Customer A. The contract covers a mix of products, ranging from low-voltage to high-voltage (HV), and will commence until December 2026.
“We are positive over this news, as it diversifies away from Tenaga Nasional Bhd’s (TNB) concentrated risk in West Malaysia, which we reckon has contributed up to 80% of the order book,” it stated.
As of the nine months ended Nov 26 of financial year 2024 (9M24), East Malaysia has contributed about RM110mil or 10% of the group’s total revenue of RM1.01bil.
Moving forward, the research house is of view that the East Malaysia market will continue to grow premised to SCGs position as one of the leading suppliers of cables and conductors.
The research house also anticipates the next round of contract awards could provide another boost to SCG’s order book in the near to medium term. This is especially considering that the current TNB 1+1 contract is nearing the end.
This is coupled with the National Energy Transition Roadmap and data centre expansions which have a stronger need for grid upgrading.
“We estimate the addressable market for HV cables to be around RM80bil, with only four key players providing HV cables and wires in the market including SCG, presenting approximately RM730mil per annum opportunities for each player, ensuring a sustained long-term orders replenishment.
“We expect margins to scale up, due to a better product mix in the local market and increased exports to the United States market,” it said.
That being said, Apex Securities had raised its earnings forecasts on SCG by 7.3% and 6.2% to RM91mil and RM109.3mil for financial year 2025 (FY25) and FY26, respectively.
The revision was said to reflect the stronger replenishment orders on hand to RM1.5bil for FY25 onwards.
Apex Securities also maintained a “buy” recommendation on SCG with a revised target price of RM1.63 a piece.
“We continue to like SCG for its role as a proxy for Malaysia’s growing power demand, expansion into the HV market, and position as one of the few vendors supplying US distributors,” it added.
