KUALA LUMPUR (Jan 3): Southern Cable Group Bhd (KL:SCGBHD) may win a contract to supply cables to the national electric utility, set to be announced within the next two months, Hong Leong Investment Bank (HLIB) flagged.
Shares of Southern Cable rose to a new record high on Friday, climbing nearly 5% or six sen to RM1.30. The stock paused for noon trading break at RM1.27 after more than seven million shares changed hands.
With a significantly higher tender value this round, Southern Cable could secure a higher-value, long-term contract from Tenaga Nasional Bhd (KL:TENAGA) thanks to its expanded capacity and the exit of a major cable supplier in Malaysia, the research house said in an unrated note.
“… we believe the group is well-positioned to secure a larger contract,” it added.
A surge in earnings has helped to nearly triple Southern Cable’s stock price in 2024. Apex Securities, the only research house with regular coverage of Southern Cable, has a ‘buy’ call with a target price of RM1.63 on the stock.
“Looking ahead, the group’s earnings growth trajectory remains strong, supported by a robust sales outlook in both the local and US markets,” HLIB said. Further, the upcoming plastic compound plant is expected to boost its margins, it noted.
The plant would allow Southern Cable to better control costs and ensure a consistent supply of plastic compound amid strong demand for power cables, the research house said.
Once operational, the company will have “a full-spectrum upstream integration in the cable business, encompassing the two most critical components of power cables — plastic compound and metal products," HLIB added.
Last month, the company announced that it has secured a contract worth RM172.57 million to supply cables and conductors.
Net profit for the third quarter ended Sept 30, 2024 (3QFY2024) more than doubled to RM18.57 million from a year ago on higher sales volume of power cables and improved margins. For the nine-month period, net profit doubled year-on-year to RM47.08 million.