Upbeat on Southern Cable’s new long-term contract in East Malaysia
KUCHING (Dec 27): Analysts are positive on Southern Cable Group Berhad (Southern Cable) as it has secured a new long-term contract worth RM172.6 million from Customer A for the supply of cables and conductors to East Malaysia.
The contract covers a mix of products, ranging from low voltage (LV) to high voltage (HV), and will commence until December 2026.
“We are positive over this news, as it diversifies away from Tenaga Nasional Bhd’s (Tenaga Nasional) concentrated risk in West Malaysia, which we reckon has contributed up to 80 per cent of orderbook,” said analysts with Apex Securities Bhd.
“With a conservative high-single-digit gross profit margin assumption, this could translate to an annual gross profit of circa RM8 million, which is five per cent of our forecasted group gross profit level.
“This latest win also bumps Southern Cable’s orders in hand to RM871.8 million, equivalent to 0.8 times FY23 revenue of RM1.05 billion.”
As of the first nine months of financial year 2024 (FY24), East Malaysia contributed about RM110 million to Southern Cable, representing approximately 10 per cent of total revenue.
Although East Malaysia’s contribution is currently around 10 per cent, Apex Securities believe this will continue to grow premised on the cable company’s position as one of the leading suppliers of cables and conductors, playing a key role as one of the major export suppliers to the East Malaysian market.
“Additionally, considering that the current Tenaga Nasional’s 1+1 contract is nearing the end of its yearly extension period, we anticipate that the next round of contract awards could provide another boost to Southern Cable’s order book in the near to medium term.
“On top of that, with the National Energy Transition Roadmap (NETR) and data centre expansions, there is a stronger need for grid upgrading.
“We estimate the addressable market for HV cables to be around RM80 billion, with only four key players providing HV cables and wires in the market including Southern Cable, presenting approximately RM730 million per annum opportunities for each player, ensuring a sustained long-term orders replenishment.”
To recap, Southern Cable currently is awaiting Certification of Product Acceptance for its 1,600 square metres HV Milliken cable, with approvals expected by 3Q25.
Apex Securities expects its margins to scale up, due to a better product mix in the local market and increased exports to the US market.
“We raised our FY25/FY26 earnings forecasts by 7.3 and 6.2 per cent to RM91 million and RM109.3 million respectively.
“The revision is to reflect the stronger replenishment orders on hand to circa RM1.5 billion for FY25 onwards, as we are confident that Southern Cable will secure more contracts with the recent East Malaysia project win.”
-Agency
