Southern Cable robust earnings momentum intact
PETALING JAYA: Southern Cable Group Bhd is expected to maintain its strong earnings momentum into the remainder of the financial year ending Dec 31, 2025 (FY25), backed by robust demand, high production utilisation and a healthy order book.
For the first quarter ended March 31, 2025 (1Q25), the group had posted a net profit of RM27.4mil and a revenue of RM390.81mil.
This was up from RM14.07mil and RM312.03mil, respectively, in the same quarter of the previous year.
Hong Leong Investment Bank (HLIB) Research said the group kicked off FY25 on a strong note, citing its 1Q25 core profit after tax of RM29.1mil which had surpassed its expectations and accounting for 29% of its initial full-year forecasts.
The earnings outperformance was mainly driven by the faster-than-expected commissioning of an additional 3,000km per year cable manufacturing capacity.
HLIB Research noted that Southern Cable continues to guide for strong cable demand from Tenaga Nasional Bhd (TNB), data centres and solar, while also indicating no disruption to the delivery schedule for its US clients despite the announcement of reciprocal tariffs.
'Demand for cables remains robust, with the expanded 3,000km per year capacity now largely taken up, as reflected by the strong 90% utilisation rate in 1Q25.
'Supported by a robust RM1.32bil order book and over RM1bil in tenders, management expects this buoyant utilisation to persist,' said the research house.
Notably, the group is transitioning to a new long-term contract with TNB in the next quarter, which is expected to yield slightly better margins due to improved pricing terms.
In the export segment, it was noted that early discussions suggest that US customers are prepared to absorb the tariff with no impact towards the group's margins.
HLIB Research projects US sales to remain steady at RM30mil per quarter throughout FY25, meeting the full-year target of at least RM100mil.
Meanwhile, the launch of the stock's new USE-2/RHW-2 low-voltage aluminium power cable has been delayed to 4Q25 due to certification delays.
'We believe the launch of this product will serve as a key catalyst, potentially enabling Southern Cable's US sales to exceed the RM30mil quarterly run-rate,' it added.
On the expansion front, the remaining 2,000km per year capacity is expected to come online by end-FY25.
The group's new polyvinyl chloride plant is also slated for commissioning in the second half of the year, while construction is ongoing at its Lot 21 and Lot 22 facilities, which are expected to contribute from the second half of FY26.
Reflecting the strong outlook, HLIB Research has raised its earnings forecasts for FY25 to FY27 by 8%, 7% and 17% respectively.
The research house has a 'buy' rating on the stock with a raised target price of RM1.69 apiece, adding that it believes Southern Cable is well-positioned to capture further market share amid growing infrastructure and energy demand.
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