Company Background. Southern Cable Group (Southern Cable) is primarily a manufacturer of cables & wires used for power distribution & transmission, telecommunications, building & construction, infrastructure and control/instrumentation applications. Currently, the group boasts a total annual production capacity of 36,000 tonnes of aluminum & copper rods, 40,780 km of cables & wires and 7,800 tonnes of polyvinyl chloride (PVC) compounds. Southern Cable is the registered supplier of cables & wires to Tenaga Nasional (TNB), Telekom Malaysia (TM), Sabah Electricity, Petroliam Nasional and Sarawak Energy.

Prospects. (i) As at 31 Dec 2023, orders on hand amounted to RM829mil (0.8x FY23 revenue) and are expected to be fulfilled by FY26. These orders include the supply of underground cables & conductors, rectifier & battery systems as well as purchase orders from engineering, procurement, construction and commissioning (EPCC) contractors/resellers/others, (ii) In FY23, the group invested in new machinery which boosted its cable & wire production capacity by 21%. Moving forward, it intends to further expand its capacity by investing in additional machinery and production facilities to meet growing demand, and (iii) Seeking to leverage the increasing demand for power cables & wires driven by Malaysia's National Energy Transition Roadmap (NETR) objectives.

Financial Performance. In FY23, Southern Cable reported higher revenue of RM1.05bil (+20% YoY) with a PAT of RM29.4mil (+2x YoY). This was mainly attributed to improved sales volume of power cables & wires, higher sales of control/instrumentation cables & wires to oil & gas projects and supply of rectifier & battery systems to the telecommunications sector.

Valuation. Based on Southern Cable’s FY23 net profit, the stock is trading at an attractive P/E of 14.5x, which is lower than Bursa Industrial Production Index’s 18x currently. As a comparison, Supercomnet Technologies, involved in manufacturing cables & wires, trades at a much higher FY24F P/E of 28x.

Technical Analysis. Southern Cable may rise higher after it surged to a new multi-year high with a long white candle a few sessions ago. The stock’s move above the RM0.52 resistance coupled with rising EMAs indicate that the near term upward momentum may persist. A bullish bias may emerge above the RM0.52 level with stop-loss set at RM0.48, below the 50-day EMA. Towards the upside, near-term resistance level is seen at RM0.60, followed by RM0.65.

Source: AmInvest Research - 16 Apr 2024