Executive Summary
We recently conducted a visit to SCGB’s manufacturing plant in Kuala Ketil, Kedah, to gather updates on the progress of its operations and capacity expansion plans.
All in all, we remain positive on its prospects as the expansion plans are well on track to materialise by FY25F and FY26F which we have already accounted for in our earnings forecasts.
We maintain our BUY recommendation with an unchanged target price of RM1.71 based on 18.0x PER applied to FY26F fully diluted EPS of 9.5 sen along with three-star ESG rating.
We came away feeling reassured from a site visit to SCGB’s manufacturing plant in Kuala Ketil, Kedah, supported by re-enforced positive outlook and improved production capabilities. Key highlights are as follows:
Response to recent volatility in LME copper prices. Geopolitical disruptions heightened commodity market turbulence, driving copper prices to a peak of USD9,982/MT on 27 Mar 2025 marking the highest level this year, before easing back to USD9,104/MT as of yesterday. Concerns over margin pressure have been effectively mitigated through SCGB’s strategic use of multiple LME contracts at different times with fixed volumes. The staggered approach enables the Group to hedge against adverse price movements more effectively, as it reduces exposure to price volatility at any single point in time. To provide further context, SCGB’s long-term customer contracts typically include a three-month buffer period, allowing them to submit quotations based on recent raw material cost trends. Meanwhile, purchase orders are priced according to prevailing daily commodity rates, along with forex and other cost components. While short-term mismatches between input costs and pricing may occasionally occur, the overall impact remains minimal, supported by fast order turnover and strong operational efficiency.
Clarification on tariff imposed on SCGB’s export to the US market. On 9 Apr 2025, President Trump revised his trade policy by suspending the country specific tariffs and implementing a universal 10% tariff on most imports for a 90-day consultation period. Management clarified that their US distributor is prepared to absorb the full 10% tariff. Should the tariff revert to the earlier proposed 24%, the incremental cost is expected to be borne by the importer or passed through to end-consumers. There is no impact on SCGB’s margins. Even with the 24% tariff fully factored in, SCGB’s offerings remain attractive in the US market, supported by strong product quality and cost-efficient production. Consequently, management remains confident in the US outlook, maintaining its FY25 sales target of RM100m (up from RM40m in FY24), backed by broader product offerings and increased capacity allocation. To recap, two new aluminium cable products are currently pending UL Solutions certification required for exports to the US, expected to be certified by 3QFY25. Note that the US export market accounted for less than 10% of total revenue in FY24.
TNB 1+1 contracts. In response to earlier issues where some manufacturers were unable to fulfil their orders due to financial constraints, TNB restructured its latest contract cycle by excluding financially distressed players and subsequently redistributing to more capable manufacturers. SCGB was among the key beneficiaries, with its contract size increasing from RM322m to RM403m, capturing around 20% of the market share. Deliveries are expected to begin in Apr 2025, but are still subject to TNB’s call-back schedule. Pricing in this tender cycle has also improved, mainly driven by a favourable product mix. Up to 70% of the contract demand is for MV cables, with the remainder from LV cables.
Business remains resilient. Operations remain busy, with production running 24/7 and utilisation rates averaging between 70-80%. SCGB is currently managing a steady flow of orders, primarily from data centre (DC), RE EPCC, and infrastructure contractors. In the DC segment, demand for LV copper cables remains strong, with most orders requiring tight turnaround times of under five weeks. Since last year, SCGB delivered about RM300m in this segment. On the RE front, there has been a noticeable uptick in orders, particularly for MV and HV power cables, driven by large-scale national programmes such as CGPP, CRESS, and LSS5. Momentum is expected to continue, supported by the government’s 70% RE mix target by 2050. With more utility-scale solar projects ahead, SCGB is well positioned to benefit as one of the few local manufacturers offering a full range of DC and AC cables used in solar systems. Separately, in the infrastructure space, SCGB is supplying 132kV underground cables and overhead conductors for the ECRL project. Looking ahead, major upcoming projects such as the HSR, Penang LRT, Johor LRT, and ART are expected to drive continued demand, placing SCGB in a favourable position for sustained growth. As of Dec 2024, total orders on hand stood at RM1.3bn, equivalent to 1.0x FY24 revenue, with 58% from long-term order books and 42% from POs.
Capacity expansion on track. SCGB’s capacity expansion of 5,000 km/year by FY25 is progressing as planned. Of this, 3,000 km/year came online in 1QFY25, with the remaining 2,000 km/year expected by 2HFY25, bringing total capacity to 51,980 km/year (+10.6%). Construction at Lots 20, 21, 22, 28, and 29 is underway, aiming to increase capacity by another 20% to c.60,000km/year over the next two years. The expansion primarily targets the LV and MV segments, supporting national grid upgrades and export demand, particularly from the US. Meanwhile, certification for the 1600mm² Milliken cable (HV power cable) is expected by 3QFY25, with production scheduled to commence in FY26F. Although production volumes are expected to ramp up gradually, the segment offers strong margin upside, underpinned by high technical barriers, as only a few producers have CCV extrusion capabilities for 1600mm² cables and are authorised under the Sijil Guna Pakai (SGP) framework.
Earnings maintained. We are comfortable with our margin assumptions and have accounted for the expansion plans. A potential earnings revision could be on the cards should margins exceed expectations in the coming quarters or in the event order mix dynamics turns more favourable against our assumptions.
Valuation & Recommendation. We maintain our BUY recommendation with an unchanged target price of RM1.71, based on 18.0x P/E applied to FY26 fully diluted EPS of 9.5 sen, along with an assigned three-star ESG rating. We continue to like SCG for its (i) role as a proxy for Malaysia’s growing power demand, (ii) increasing demand for HV power cables, and (iii) position as one of the few vendors supplying US distributors.
Risk. Heavy reliance on government initiatives. Inability to secure new contracts. Spike in raw material costs such as copper and steel.
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| Currency | Buy Rates (RM) | Sell Rates (RM) |
|---|---|---|
| USD | 4.353768 | 4.388176 |
| EUR | 4.972823 | 4.977858 |
| CNY | 0.599000 | 0.599600 |
| HKD | 0.561405 | 0.565352 |
| SGD | 3.320010 | 3.343413 |