Southern Cable Group Berhad - Post-results briefing takeaways
Wed, 11-Jun-2025 07:41 am
by Tan Sue Wen • Apex Research

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SCGBHD (0225)

Target Price (RM)

1.72

Recommendation

Buy

We attended SCGB’s 1QFY25 results briefing and remain confident in our positive outlook for the company. Below are the key highlights from the session:

 

Margin expansion. SCGB anticipates a sustained expansion in its profit margin in the coming quarters, driven by (i) more favourable pricing from the transition to the new TNB 1+1 contract cycle,(ii) increased production capacity to 52,000 km/year from 50,000 km/year, driving economies of scale, (iii) strong demand from the higher-margin US market, with UL certification for USE-2 / RHW-2 (URD) aluminium cables and wires targeted by 4QFY25 and (iv) the cost efficiencies from the new plastic compound factory, commissioning in 2HFY25. 

 

US market remains resilient. In 1QFY25, export revenue surged six-fold yoy to RM31.1m, driven by robust demand from the US market, primarily fuelled by heightened construction activity and infrastructure development in the region. The performance underscores SCGB’s growing role as a trusted supplier in the US, supported by its ability to meet stringent quality requirements. Despite a delay in UL certification for its USE-2 / RHW-2 (URD) aluminium cables, now targeted for 4QFY25 from an earlier 2QFY25 timeline due to extended testing protocols, management remains confident in achieving the RM100m US revenue target for FY2025.

 

Progress on HV cable certification. SCGB has revised the certification timeline for its 1800mm² HV cables and wires from TNB to 1HFY26, a delay from the previously anticipated 2HFY25. This adjustment is due to extended overseas type testing, specification evaluations, and field-testing requirements. Despite the delay, this aligns with our expectations, and we foresee no impact on our earnings forecasts. 1800mm² HV cable remains a significant untapped opportunity, driven by robust demand from data centres and national energy transition initiatives. SCGB is well-positioned to capture the demand, where only a few sizeable players remain.

 

Total orders on hand.  As of 31 Mar 2025, SCGB's total orders on hand stood at RM1.3bn, comprising 20% MV cables, 5% HV cables, and the remainder primarily from LV cables, providing visibility for up to a year. The forthcoming rollout of LSS5, LSS5+, and new ESAs signed by TNB for DC projects underscores the resilient demand for MV and HV power cables and wires over the near to medium term, as they are key components used in connectivity systems.

 

Earnings forecasts. Maintained.

 

Valuation & Recommendation. Reiterate BUY with an unchanged TP of RM1.72, based on 15x FY26F EPS of 11.5 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 US distributors.

 

Risks. Heavy reliance on government initiatives. Inability to secure new contracts. Spike in raw material costs such as copper and steel.

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Opinions, estimates and projections in this report constitute the current judgment of the author. They do not necessarily reflect the opinion of Apex Securities Berhad and are subject to change without notice. Apex Securities Berhad has no obligation to update, modify or amend this report or to otherwise notify a reader thereof in the event that any matter stated herein, or any opinion, projection, forecast or estimate set forth herein, changes or subsequently becomes inaccurate.

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