HLIB starts coverage on Southern Cable with positive outlook
The firm raised the earnings estimates for Southern Cable for financial years 2025, 2026 and 2027 (FY25/FY26/FY27) by 8.0 per cent, 7.0 per cent and 17 per cent, respectively.
It stated that the notable increase in the FY27 sales forecast primarily reflects the anticipated contribution from the company's Lot 21 and Lot 22 production facilities.
Concurrently, HLIB Research initiated a "buy" call and a higher target price of RM1.69 per share from RM1.55 previously, based on a multiple of 18 times fully diluted FY25 earnings per share (EPS) of 9.4 sen.
The firm said Southern Cable's current order book stands at RM1.32 billion, equivalent to 0.98 times FY24 revenue coverage.
This includes RM792 million in long-term contracts with utility companies, with the rest made up of purchase orders.
"Demand for cables remains robust, with the expanded 3,000 km per year production capacity now largely taken up, as reflected by the strong 90 per cent utilisation rate in the first quarter of the financial year 2025 (1QFY25).
"Supported by a robust RM1.32 billion order book and over RM1 billion in tenders, management expects this buoyant utilisation to persist," the firm said.
HLIB Research added that the company expects strong utilisation to continue, backed by its RM1.32 billion order book and over RM1 billion in tenders.
For Tenaga Nasional Bhd sales, management anticipates maintaining a similar run rate in the next quarter.
This period will also see a key transition from the old 1+1 long-term contract to a new one, expected to support slight margin improvements from better pricing.
In the private sector, order enquiries for medium-voltage and high-voltage cables remain strong, driven by demand from data centre and East Coast Rail Link (ECRL) projects.
In the solar segment, the group is currently fulfilling projects under the Corporate Green Power Programme (CGPP), with fifth large-scale solar (LSS5)-related demand expected to pick up in the second half of this year.
HLIB Research also said that Southern Cable's sales in the United States continue as usual, with no disruptions expected despite the recent announcement of reciprocal tariffs.
As one of the customer's top three suppliers, early discussions have indicated that the US customer is prepared to absorb the additional tariffs — reportedly as high as 24 per cent — without impacting Southern Cable's margins.
Meanwhile, the remaining 2,000 km a year capacity expansion planned for FY25 will come online by end-FY25, following the installation of new lines.
With regards to the new polyvinyl chloride plant, installation is currently underway, with commissioning scheduled for 2HFY25.
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