Southern Cable Group Bhd's core earnings to grow by over 24% in financial years 2025 and 2026, as the group is set to expand its production capacity in 2025 by allocating cumulatively RM22 million of capital expenditure (Capex), said analysts of Apex Securities Bhd (Apex Research).
Apex Research has projected that Southern Cable's core earnings to grow by 25.3% YoY to RM72 million in 2025, and by 24.8% YoY to RM89.9 million in 2026.
Looking into 2025, the group will allocate a cumulative RM22 million in capital expenditure (Capex), of which RM8 million is to be funded by internal funds and borrowings, whereas the balance of RM14 million to be funded by balance Initial Public Offering (IPO) proceeds, internal funds and borrowings. The current production capacity is near the optimum level at around 82%.
Analysts on Nov 7 awarded a BUY rating for Souther Cable and set the target price at RM1.08, rewarding an upside of nearly 20% based on the prevailing market price.
As at 5:00pm on Nov 8, Southern Cable's shares stood at RM0.90.
Southern Cable, founded in 1993, is renowned as a manufacturer of cables and wires used in power distribution, communications, and control and instrumentation applications, with a strong track record of over three decades working with notable clientele including Telekom Malaysia Bhd (TM), Tenaga Nasional Bhd (TNB), Petroliam Nasional Bhd (Petronas), Sabah Electricity Sdn Bhd (SESB) and Sarawak Energy Bhd (SEB).
In response to the growing electricity demand from data centers (DCs), TNB plans to upgrade existing cable size from 800 square millimeter2 (sq mm2) to 1600 sq mm2 conductors to boost power capacity that can boost orders for Southern Cable. Beyond TNB's upgrade project, the group is further supported by private DC projects with delivery requirements usually under two months.
Also, the group has a strong track record in supplying cables for railway projects, serving as one of the preferred suppliers for Keretapi Tanah Melayu Bhd (KTM) and a supplier for the MRT Sungai Buloh–Kajang Line (MRT1), MRT Putrajaya Line (MRT2) as well as RAPID development in Pengerang, Johor. This proven track record helped Southern Cable secured an RM18 million contract for the Kelantan section of the ECRL project.
About 80% of Southern Cable's sales is derived from purchase orders, with most orders usually completed within a three-month timeframe. The remaining 20% is generated from long-term contracts from utility companies, typically lasting up to a year.
In the first half of 2024, the group's gross profit (GP) breakdown reflected that about 90% of GP was contributed by power supply, roughly 5% by control systems, and around 1% by instrumentation and communication, with the remainder coming from other sources.
To mitigate the risk of over reliance on the Malaysian market, Southern Cable aims to increase exports to about 30% of total revenue in the long run. In the first half of 2024, exports only made up 3% of total revenue, reaching RM17.2 million, with the US market contributing about 50% of this amount. The group is aiming to double shipment batches to 100 containers/month from the current level of 50.
The cable manufacturer is also riding the solar wave. Malaysia has set a goal of 70% renewable energy (RE) capacity mix by 2050, and as a result, the country needs to increase RE power capacity gradually until 2050.
As of the second quarter of 2024, key activities include annual production capacity expansion, in-house manufacturing of plastic compounds used as insulation and protective layers for cables and wires, as well as the production and trading of wooden cable drums utilised for the packaging and storage of the manufactured products.
As of the second quarter in 2024, the group's order book comprised 63% of ongoing contracts and 37% of purchase orders. During the same quarter, Southern Cable's total purchase orders stood at 339 orders, down from 379 registered in the previous quarter. Meanwhile, total order book recorded 585 orders, up from 524 orders recorded in the first quarter.
