Southern Cable Group Berhad - Exports Drive Robust Results
Tue, 26-Aug-2025 08:24 am
by Tan Sue Wen • Apex Research

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SCGBHD (0225)

Target Price (RM)

2.14

Recommendation

Buy

  • SCGBHD’s 2QFY25 core net profit came in at RM31.5m (+8.3% QoQ, +121.1% YoY), bringing the 6MFY25 CNP to RM60.6m (+117.5% YoY). The result is within expectations, accounting for 48% of our full-year forecast and 51% of consensus estimates.

  • Demand for MV and HV cables remained robust during the quarter, accounting for about half of sales (vs <40% in 1QFY25). Export sales also rose significantly, bringing 6MFY25 exports to RM78.2m, already close to management’s RM100m full-year target.

  • During the quarter, an additional 2k capacity came online, lifting annual output to 51,980km, while utilisation remained high at ~90% on a 24-hour basis.

  • As of 30 June 2025, total orders in hand stood at RM1.2bn, comprising HV and MV (>50%), LV (~40%), and others, representing 0.9x of FY24 revenue.

  • Reiterate BUY with an unchanged TP of RM2.14, based on 17x FY26F EPS of 12.6 sen and supported by a three-star ESG rating.

 

Within expectations. After adjusting for a FV gain on derivative financial instruments (-RM0.1m), 2QFY25 core net profit came in at RM31.5m (+8.3% QoQ, +121.1% YoY), bringing the 6MFY25 CNP to RM60.6m (+117.5% YoY). This accounts for 48% of our full-year forecast and 51% of consensus estimates. The Group declared a first interim dividend of 1.20 sen/share (2QFY24: none).

 

QoQ. CNP grew by 8.3% to RM31.5m, mainly supported by stronger contributions from the Power segment (segmental GP +10.7%). This was driven by a higher sales volume (segmental revenue +5.8%) and margin expansion (GP margin +0.6%-pts) supported by a more favourable product mix, as MV and HV cables accounted for more than half of sales in 2QFY25 (vs. <40% in 1QFY25). Export sales also registered robust growth (+51.4%), led by stronger demand from overseas markets, particularly the US, which likely also contributed to the margin uplift. These gains outweighed higher net finance costs (+13.0%) from increased borrowings to fund working capital and capacity expansion. Consequently, the core PATMI margin inched up by 0.1%-pts to 7.5%.

 

YoY. CNP more than doubled (+121.1%), driven by stronger power cable sales (+36.0%), on the back of firm demand from domestic and overseas markets.  Growth was further boosted by a more favourable product mix, with the Power segment’s GP margin widening 5.2%-pts to 13.8% on stronger demand for MV and HV cables. Overseas sales also surged (+261.6%), lifting exports to 11.2% of total revenue (vs. 4.1% in 2QFY24). Consequently, core PATMI margin expanded 3%-pts to 7.5%, reflecting a more favourable product mix and economies of scale.

 

Outlook. We expect SCGBHD to deliver stronger earnings in 2HFY25, supported by a robust order book of RM1.2bn and resilient demand from domestic and overseas markets. During the quarter, an additional 2k capacity came online, lifting annual output to 51,980km, but orders were still quickly filled, with utilisation running at ~90% on a 24-hour basis. Exports remain a key growth driver, with 6MFY25 sales of RM78.2m mainly to the US already close to management’s full-year target of RM100m. The scheduled launch of a UL-certified USE-2/RHW-2 (URD) aluminium cable in 4QFY25 should further support earnings, given the higher margins typically earned from export sales. Domestically, the rollout of MRT3, Penang LRT, LSS5 and LSS5+ solar programmes, coupled with the approval of 42 new DC projects in Johor, is expected to drive stronger demand for MV and HV cables. As one of Malaysia’s leading cable manufacturers, SCGBHD is well-positioned to capture this growth, with order book replenishment expected to remain robust.

 

Orders in hand. As of 30 June 2025, SCGBHD's orders in hand stood at RM1.2bn, comprising >50% MV and HV cables, ~40% LV, with the balance from others, representing 0.9x of FY24 revenue.

 

Earnings forecasts. Maintained.

 

Valuation & Recommendation. Reiterate BUY with an unchanged TP of RM2.14, based on 17x FY26F EPS of 12.6 sen and supported by a three-star ESG rating. We continue to like SCGBHD 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.

 

Risks. Policy Risks. Inability to secure new contracts. Spike in raw material costs such as copper and steel.

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