KUALA LUMPUR: Apex Securities has increased its earnings forecast and target price for Southern Cable Group Bhd (SCG) due to expected higher demand for cables and wires, estimated at RM1.5 billion for financial year 2025 (FY25) onwards.
It has raised its target price for the company, which is one of only four key players providing high voltage cables and wires in the market, from RM1.27 to RM1.63, maintaining a 'Buy' recommendation on the stock.
The firm has also increased its FY25 and FY26 core net profit projections by 7.3 per cent and 6.2 per cent, to RM91.0 million and RM109.3 million respectively.
Apex Securities expects SCG to benefit from the upcoming end of the Tenaga Nasional Bhd 1+1 contract extension period, which could lead to further contract wins for the company in the near term.
It said the expansion of data centres and the National Energy Transition Roadmap (NETR) are also expected to drive demand for SCG's high-voltage cables business.
Apex Securities estimates a market size of around RM80 billion, representing a RM730 million per annum opportunities for each player, ensuring a sustained long-term orders replenishment.
SCG currently is awaiting Certification of Product Acceptance for its 1,600 square metre high voltage Milliken cable, with approvals expected by 3QCY25.
"We expect margins to scale up, due to a better product mix in the local market and increased exports to the US market," Apex Securities said.
SCG clinched a new contract worth RM172.6 million for the supply of cables and conductors to East Malaysia on Thursday.
The new contract, which covers a range of products from low-voltage to high-voltage cables, will be effective until December 2026.
The contract will increase SCG's total orders in hand to RM871.8 million, about 0.8 times the company's revenue for FY23.
"We are positive over this news, as it diversifies away from Tenaga Nasional Bhd's concentrated risk in West Malaysia, which we reckon has contributed up to 80 per cent of orderbook," the firm said.
The East Malaysian market, which currently accounts for about 10 per cent of SCG's total revenue, is seen as a growing area for the company.
"We believe this will continue to grow premised to SCG position as one of the leading suppliers of cables and conductors, playing a key role as one of the major export suppliers to the East Malaysian market," Apex Securities said in its note.