The Daily Pulse of Bursa Malaysia

Increased spending on power infra augurs well for Southern Cable

Publish date: Wed, 08 May 2024, 09:12 AM
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Southern Cable Group Bhd (SCG) has been on an uptrend since early this year

The counter has surged 37.2% to close at 59 sen on May 7, touching a year high of 60 sen.

It was trading at a year low of 28 sen last year.

It looks like SCG may continue its uptrend to breach 65 sen resistance level and thereafter 72 sen.

The manufacturer of cables and wires is poised to benefit from rising power infrastructure spending to cater for an expected rise in electricity consumption.

It is already serving customers such as Tenaga Nasional, Sabah Electricity and Sarawak Energy.

SCG’s orderbook has exceed RM1 billion (1.14x cover ratio), providing earnings visibility for the next three years.

Its recently secured MYR332.1m contract from TNB for the supply of underground cables and conductors brings its YTD contract wins to more than RM500 million.

More excitingly, SCG is a thriving player in this evergreen market, which will have a greater need to fulfil Malaysia's ambitious goal of achieving net zero emissions by 2050.

This includes higher uptake of renewable energy (RE) sources and the enhancing of the country’s grid, is expected to be a catalyst for SCG’s earnings growth.

SCG is expected to enjoy growing export sales and recovering margins, recording a FY22-25 earnings CAGR of 24.3% backed by a solid orderbook.

Under the National Energy Transition Roadmap solar photovoltaic (PV) capacity is expected to chart a 14% CAGR to 57GW by 2050.

This would augur well for SCG’s certified solar PV cables, which are now widely used by major solar EPCC players.

Meanwhile, Tenaga Nasional is upgrading the country’s power grid to accommodate the increasing integration of RE and growing energy consumption.

Some RM420 billion is the estimated investment needed to upgrade the grid over 2023 to 2050 whle Tenaga has expected RM90 billion in capex for 2025 - 2030.

As it is, these contracts account for more than 30% of SCG's revenue, so the group stands to gain significantly from these upgrades.

SCG also has strong and longstanding partnership with TNB and its reputation for delivering high-quality products.

This smallish company can easily be missed by investors but it is one of the sector’s cost leaders and possesses the widest range of product offerings locally.

It also enjoys the lion’s share of demand for cables from Tenaga and serves as an interesting investment case for investors.

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