Southern Cable Group Bhd (SCGBHD) is principally a manufacturer of cables and wires that are used for power distribution and transmission, communications as well as control and instrumentation applications. The group also provides related products and services including, among others, aluminium rods, plastic compounds and wooden cable drums; trading of cables and wires, and copper strips; and supply and installation of rectifiers. The group's principal business activity of manufacturing cables and wires are supported by key activities such as furnace and continuous casting and plastic compounding manufacturing. As at 1 Sept 2020, SCGBHD is a registered supplier of cables and wires with Tenaga Nasional Bhd (TNB), Sabah Electricity S/B, Telekom Malaysia Bhd (TMB) and Petroliam Nasional Bhd (PETRONAS).

Moving forward, SCGBHD will continue to strengthen its core competency in the manufacture of cables and wires, and plastic compounds by expanding both production facilities and product range for cable and wire production as well as plastic compounding operation. We derive a fair value of RM0.45 based on an 11x PE multiple to its FY2021F EPS of 4.1 sen. The IPO is expected to raise approximately RM71.2m from the issuance of 209.3m new shares. Besides utilising 42.2% of the proceeds for capital expenditure and expansion, 38.6% of the proceeds are allocated as working capital.

• Growth drivers. SCGBHD’s growth will be dependent on: i) construction of new factories for cable and wire production, ii) construction of new factory for plastic compounding operation, iii) purchase of new machinery and equipment, iv) purchase of new enterprise resource planning (ERP) system, and v) expansion of product range for cables and wires as well as plastic compounds.

• Competitive strengths. SCGBHD’s competitive strengths include: i) having an established track record as a manufacturer of cables and wires, ii) having various certifications for its products, iii) manufacturing a range of cables and wires to meet customer requirements, iv) having key supporting activities for its manufacturing of cables and wires, and v) having experienced management team.

• Catalysts. Key drivers may include: i) government rural electrification programmes, ii) TNB capital expenditure, and iii) economic growth in Cambodia and Myanmar.

• Key risks. Key downside risks, among others, include i) dependency on the demand and performance of its main user-industries, ii) financial impact arising from liquidated ascertained damages, iii) fluctuations in the prices of raw materials, iv) foreign exchange fluctuations, and v) dependency on the uninterrupted supply of electricity and gas.

Source: PublicInvest Research - 6 Oct 2020