Southern Cable may extend its fine upward run on better prospects

Southern Cable Group Bhd looks to be extending its upward momentum after a rebound recently. The company has had a good run in the past year, having surged about 160%.

What do investors see in the cable and wire manufacturer?

One thing is its forward earnings, which will be underpinned by existing orders of RM923 million. The orders include the recently secured RM99.6 million supply contract from Tenaga Nasional Bhd.

These orders, expected to be fulfilled by 2026, involve supplying underground cables and conductors to power utility companies, rectifier and battery systems to a major telecommunications company. This also include purchasing orders from engineering, procurement, construction and commissioning (EPCC) contractors.

Southern Cable, which has observed an increase in orders from the US in line with rising construction activity. The company anticipated a gradual improvement in overseas revenue, which stood at 4.13% of its total revenue inthe second quarter ended June 30, 2024 (2QFY24).

Fundamentally, the company is on a much stronger footing. Its net profit more than double year-on-year in 2QFY24, on the back of higher revenue, better product mix and lower plastic compound costs. Net profit for 2QFY24 almost tripled to RM14.43 million from RM5.35 million in 2QFY23

Quarterly revenue rose 36% to RM315.33 million from RM231.85 million, mainly attributed to higher sales volume of power cables and wires, and higher adjusted average selling prices of cables and wires in line with higher raw material prices.

The increase in revenue was further supported by the company's larger production capacity following the commencement of a new production facility in Kedah.

The new facility that produces low-voltage power cables and wires has an annual capacity of 5,000km, which should raise the group’s annual capacity to 46,98 km by end-2024, from 41,980km.

The power cables and wires segment accounted for RM285.46 million or 90.53% of its total revenue for the current quarter, up 39.15% from RM205.15 million in 2QFY2023.

The remaining RM29.87 million or 9.47% of total group revenue was derived from the communication cables and wires segment, control and instrumentation cables and wires segment.

Southern Cable is investing in its production capacity to meet the growing demand for cables and wires. It has been receiving numerous enquiries from various industry players, including power transmission and distribution, construction, and infrastructure, as well as data centre builders.

The company is currently trading at a PE ratio of 15.8x, which is the highest among peers where the ratio is applicable (not loss-making or insufficient data). The company had been consistently profitable in the past 4 financial years.

With a much brighter outlook, Southern Cable is likely to surge even more in the immediate term.