Southern Cable Group Bhd's third quarter core net profit grew 185% year-on-year (YoY) and the nine-month core net profit expanded by 177% YoY, as the group stands to gain from supply tightening due to closure of competing plants and high demand for cables arising from Tenaga Nasional Bhd's (TNB) electric grid upgrade plan and data centre expansion, according to Apex Securities.
The outperformance has prompted revision by analysts to increase earnings forecast for 2024, 2025 and 2026 by 6.9%, 4.6%, 3.0%, respectively, to account for a higher margin in power cables and an increase in replenishment orders on hand.
Apex Securities has maintained its BUY recommendation for Southern Cable and has revised upward the target price to RM1.131, representing a 15 sen premium over market valuation.
Southern Cable's stock traded at RM0.98 as at 10:02am Nov 27, up one and a half sen from its previous closing price of RM0.965. (Stock updates from Bursa Malaysia)
Owing to reduced production capacity in the industry following the shutdown of a few competitors, Southern Cable looks set to capitalise on the imbalance between supply and demand, with more billings coming in from power cables and wires over the next few quarters.
On top of that, Southern Cable is expected to secure more project wins, particularly with TNB's upcoming 1+1 contracts, which should be finalised in the coming months. Southern Cable stands to benefit from TNB's grid upgrade plan, solar development, industrial buildings development, and the rapid expansion of data centers.
As of Sept 24, the Group's total orders on hand stood at RM699.3 million, with 47.2% from purchase orders and 52.8% from the orderbook.
Southern Cable's core net profit for the third quarter of 2024 jumped nearly three-fold (+184.6%) YoY and climbed 28.7% quarter-on-quarter (QoQ) to RM18.6 million, with revenue rising 21.7% QoQ to RM383.6 million. The strong earnings performance was largely due to better contribution in power segment, supported by increased sales volume and a more favorable product mix, especially a higher proportion of MV cables and wires that commands better margins. This is despite the Communication and Control & Instrumentation segments registering weaker earnings performance, down 29.1% and 13.3% respectively, due to softer domestic market sentiment.
Southern cable's year-to-date (YTD, up to September) core net profit of RM47.1 million came in stronger than expected, which makes up 81.9%/82.2% of analysts/consensus full-year estimates. The outperformance was mainly driven by better-than-expected sales and product mix in the power segment. A first interim dividend of 0.75 sen/share was declared.
- Target price of RM1.13 determined based on 18.0x PER pegged to FY2025 fully diluted EPS of 6.3 sen.
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