Southern Cable to ride on greater power demand

NST Tue, Jul 19, 2022 09:36am - 1 year View Original


KUALA LUMPUR: Southern Cable Group is set to capitalise on the higher electricity demand following Malaysia's transition to the endemic phase. 

Hong Leong Investment Bank Bhd (HLIB) analyst Sam Jun Kit said in a note that Tenaga Nasional Bhd (TNB) witnessed electricity demand growth at 4.0 per cent year-on-year in first quarter (Q1) of 2022 for peninsula and expected a full-year growth of 1.7 per cent in 2022. 

With this, the TNB had set aside RM11.8 billion for capital expenditure this year (the highest since pandemic), with the plan to spend more on its grid system. 

"Separately, we gather that the demand for power cables from the private sector has also picked up on strong foreign direct investment inflow, which registered RM788.8 billion (12.8/per cent YoY) in the financial year 2021 (FY21) with manufacturing being the main contributor. 

"Particularly, the demand for power cables comes from Batu Kawan industrial and Kulim Hi-Tech hubs. 

"Adding in yesterday's contract win from Tenaga (contract value of RM293.8 million), current orders in hand of RM816.3 million implies a cover of 1.23 times," said Sam.

He added that Southern Cable woud focus on growing its export sales by tapping into oversea markets such as Myanmar, Cambodia, Vietnam and the United States. 

In particular, the Myanmar market is set to grow over the next eight years amid rapid urbanisation. 

Spearheaded by the Myanmar National Electrification Project (NEP) in 2017, domestic electrification rate is envisaged to achieve a 100 per cent by 2030 to provide electricity access to all Myanmar households. 

Separately, the group is in the midst of entering the US market via signing a distributorship agreement with a US-based customer for its in-house developed XHHW-2 industrial cables, which command a better margin.

The firm expects Southern Cable's core earnings to register a strong 29 per cent for FY21-FY24.

"Despite facing higher input costs from metal-based materials such as copper and aluminium, and non-metal-based materials including plastic and sawn timber, we expect a gradual margin recovery, on the back of revival of overall, industrial, construction and infrastructure projects, upward adjustment in the pricing, enhanced product portfolio as well as burgeoning export sales prospects," he said. 

Due to the limited comparable peers in the domestic market, the firm extended its search to include global players which have high degree of similarities to Southern Cable's business operations. 

As such, it arrived with a fair value of 42 sen for the stock.

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