Southern Cable Group (SCGBHD | 0225)

Last Price: RM0.96 | Technical Call: BUY

Company Background. Southern Cable Group (Southern Cable) primarily manufactures cables & wires used in power distribution and transmission, telecommunications, construction, infrastructure, and control & instrumentation applications. The group's current annual production capacity includes 20,400 tonnes of aluminum rods, 18,000 tonnes of copper rods, 41,980 kilometers of cables and wires, and 7,800 tonnes of plastic compounds. Southern Cable is a registered supplier of cables & wires to Tenaga Nasional (TNB),

Telekom Malaysia (TM), Sabah Electricity, Petroliam Nasional, and Sarawak Energy.

Prospects. (i) Driven by the rising demand for cables & wires in Malaysia and a strategic emphasis on the National Energy Transition

Roadmap (NETR), the group's current order book of RM923mil - including contracts with TNB, Sarawak Energy, and TM - positions it well for growth through FY26, (ii) Aims to capture U.S. market growth by expanding its product range and securing UL certification for building cables, targeting rising demand from increased construction activity and long-term revenue growth, and (iii) Expanding production capacity with a new facility on a recently acquired 7.9-acre industrial site in Kedah, construction is set to begin in 2025.

This expansion supports growth initiatives for both U.S. and domestic markets.

Financial Performance. In 1HFY24, Southern Cable reported higher revenue of RM627.4mil (+32.7% YoY) with a PAT of RM28.5mil (+2.7x YoY). This was mainly due to higher sales volume for power cables & wires, improved margins from lower plastic compound costs, a better product mix, and contributions from battery system installation services for the telecommunications sector.

Valuation. Southern Cable is currently trading at an FY24F P/E of 18x, which is lower than the Bursa Industrial Production Index's

21.5x. For comparison, Supercomnet Technologies, which manufactures cables & wires for electronic devices and data control switches, as well as medical cables & devices, trades at a higher FY24F P/E of 27x.

Technical Analysis. Southern Cable may trend higher after it surged to a 3.5-month high and closed above the RM0.94 resistance yesterday. As the 20-day and 50-day EMAs have established their bullish crossover three weeks ago, it may see additional strength in the near term. A bullish bias may emerge above the RM0.94 level with stop-loss set at RM0.82, below the 4 Nov low. Towards the upside, near-term resistance level is seen at RM1.05, followed by RM1.20.

Entry: RM0.94-0.96

Target: RM1.05, RM1.20

Exit: RM0.82

Source: AmInvest Research - 15 Nov 2024