Company Background. Southern Cable Group (Southern Cable) is a manufacturer of cables & wires used in power distribution/transmission, communications and control/instrumentation applications. Currently, the group boasts a total annual production capacity of 36,000 tonnes of aluminum/copper rods, 38,780 km of cables & wires, and 7,800 tonnes of polyvinyl chloride compounds. Southern Cable has established a customer base, including major public utilities and telecommunication providers such as Tenaga Nasional (TNB), Telekom Malaysia (TM), Petroliam Nasional, Sabah Electricity and Sarawak Energy.

Prospects. (i) Aiming to capitalise on growing demand for power cables & wires driven by Malaysia’s National Energy Transition Roadmap (NETR) objectives, (ii) As at 30 September 2023, orders on hand amounted to RM893mil, including the supply of underground cables/conductors to TNB and Sarawak Energy, the provision of rectifier/battery systems to TM and purchase orders from engineering, procurement, construction and commissioning (EPCC) contractors/reseller/others, and (iii) annual cable & wire production capacity increased by 21% in FY23 due to the installation of new machinery to meet higher demand.

Financial Performance. In 9MFY23, Southern Cable reported higher revenue of RM746.5mil (+17% YoY) with a PAT of RM17mil (+70.5% YoY). This was mainly attributed to higher sales of power and control/instrumentation cables & wires, better product mix, improved efficiency, lower finance cost and better profit margins.

Valuation. Based on Southern Cable’s 9MFY23 annualised net profit, the stock is trading at an attractive 2023F P/E of 14.8x, which is lower than Bursa Industrial Production Index’s 23.7x currently. As a comparison, Supercomnet Technologies, involved in manufacturing cables & wires, trades at a much higher FY23F P/E of 33x.

Technical Analysis. Southern Cable may rise higher after it surged to a new 52-week high and closed above the key RM0.40 resistance 2 weeks ago. Given that the stock has also broken out from a 10-week bullish rectangle pattern, the resumption of its buying momentum may be taking place now. A bullish bias may emerge above the RM0.40 level, with stop-loss set at RM0.34, below the 23 October 2023 low. Towards the upside, near-term resistance level is seen at RM0.50, followed by RM0.55.

Source: AmInvest Research - 2 Jan 2024