Company Background. Southern Cable Group (Southern Cable) is principally a manufacturer of cables & wires in Malaysia. The group’s cables & wires are used in various industry sectors including power distribution/transmission, telecommunications, building/construction, infrastructure, manufacturing, oil/gas and petrochemical plants. It has established a customer base, including major public utilities & telecommunication providers such as Tenaga Nasional (TNB) and Telekom Malaysia (TM).

Prospects. (i) Poised to deliver more than RM1bil of orders in hand until FY26, which includes the latest secured underground cable and conductor supply contract of RM332mil from TNB, (ii) Expect robust demand for power cables & wires, in line with accelerated infrastructural developments nationwide such as National Energy Transition Roadmap (NETR) initiative, and (iii) Develops and offers a full range of power cables & wires - including certified solar photovoltaic cables - which have been used in projects like Large Scale Solar, positioning the group for the renewable energy market.

Financial Performance. In 1HFY23, Southern Cable reported higher revenue of RM472.8mil (+18.3% YoY) with a PAT of RM10.5mil (+68.6% YoY). This was mainly driven by higher sales volume, better product mix, improved efficiency and adjusted average selling prices of cables & wires in line with raw material prices.

Valuation. Based on Southern Cable’s 1HFY23 annualised net profit, the stock is trading at an attractive 2023F P/E of 14.5x, which is lower than its 5-year forward average of 21x and Bursa Industrial Production Index’s 25.3x currently. As a comparison, Supercomnet Technologies, involved in manufacturing cables & wires, trades at a much higher FY23F P/E of 30.7x.

Technical Analysis. Southern Cable may trend higher after it broke above the RM0.36 resistance and hit a new 52-week high a few sessions ago. The stock also broke out from a 2-week bullish pennant pattern, which coincided with rising EMAs, likely indicating that the near-term uptrend may persist. A bullish bias may emerge above the RM0.36 level, with stop-loss set at RM0.34, below the 50- day EMA. Towards the upside, near-term resistance level is seen at RM0.42, followed by RM0.45.

Source: AmInvest Research - 20 Oct 2023