Southern Cable Group Berhad - Growth remains intact
Fri, 23-May-2025 10:25 am
by Tan Sue Wen • Apex Research

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SCGBHD (0225)

Target Price (RM)

1.71

Recommendation

Buy

Business remains resilient. Despite concerns over a potential near-term slowdown in data centre (DC) development, driven by U.S. policy shifts under the Trump administration and hyperscaler pullbacks, SCGBHD maintains robust operations, supported by a steady order flow from fast-tracked projects under Tenaga Nasional’s Green Lane Pathway, accelerated substation development for solar farms, and other national infrastructure initiatives. As of FY24, SCGBHD’s direct exposure to DC projects remains minimal (<5% of revenue), with earnings primarily driven by long-term contracts with national utilities and strong purchase orders. Recent TNB 1+1 contract wins, which is through RP4’s base capex of RM26.6bn rather than its RM16.3bn contingent capex, insulate SCGBHD from data centre-related impacts. We believe the activation of contingent capex, targeted at supporting renewable energy (RE) and new demand growth, will act as an upside catalyst, driving further demand for power cables and wires, thereby enhancing SCGBHD’s order book visibility.

 

Outlook. With a planned plant capacity expansion of 5,000 km/year by FY25, of which 3,000 km/year came online in 1QFY25, and the remaining 2,000 km/year is expected by 2HFY25, total capacity will increase to 51,980 km/year (+10.6%). Ongoing construction at Lots 20, 21, 22, 28, and 29 aims to boost capacity by another 20% to c.60,000 km/year within two years. Given these expansions, we believe SCGBHD is well-positioned to capture additional order demand, supported by national grid development, RE projects, the domestic construction boom, and growing traction in the US market. 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.

 

Earnings maintained. Maintained.

 

Valuation & Recommendation. In line with our revised sector outlook, we have adjusted SCGBHD’s PER from 18x to 15x to reflect more moderate growth in electricity demand and substation construction activity, which softens demand for power cables and wires. Consequently, we lower our target price to RM1.42 (from RM1.71) and maintain our BUY recommendation, based on 15x FY26F EPS of 9.5 sen, supported by a three-star ESG rating. We remain positive on SCGBHD for its (i) role as a proxy for Malaysia’s growing power demand,(ii) increasing demand for HV power cablesand (iii) position as one of the few vendors supplying U.S. 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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