Company Spotlight: News Fueling Financial Insights

Southern Cable Soars on Strong Demand and Expansion Plans

Southern Cable Group Berhad has reported an exceptional second quarter, with net profit more than doubling to RM31.6 million, driven by a 33% surge in revenue. The Malaysian cable and wire manufacturer's stellar performance is underpinned by robust domestic and export demand, particularly for high-voltage products used in renewable energy and data center projects. A massive order book of RM1.17 billion provides clear earnings visibility well into 2026. Demonstrating confidence in its financial health, the company declared a 1.2 sen per share dividend. Furthermore, Southern Cable is aggressively expanding its production capacity with a new RM40 million facility in Kedah, set to triple its aluminium output and allow it to manufacture higher-voltage cables, positioning the company to capitalize on long-term infrastructure and energy transition trends.

#####Sentiment Analysis ✅ Positive Factors

• Explosive Profit Growth: A 119.3% year-on-year jump in quarterly net profit demonstrates exceptional operational performance and efficient scaling.
• Robust Revenue Growth: A 33% increase in revenue to RM419.3 million confirms strong top-line demand and successful market penetration.
• Massive Order Book: The RM1.17 billion order book provides exceptional earnings visibility for over a year, de-risking near-term financial performance.
• Strategic Expansion: The new manufacturing facility is a direct and timely response to surging demand, positioning the company to capture more value in the high-margin, high-voltage cable segment.
• Successful Export Push: Overseas revenue quadrupled in the quarter, significantly diversifying its revenue streams and reducing reliance on the domestic market.

⚠️ Concerns/Risks

• Execution Risk: The company's ambitious expansion plan must be completed on time and on budget in 2026 to meet the anticipated demand; any delays could be a setback.
• Commodity Price Volatility: As a manufacturer, Southern Cable is exposed to fluctuations in the prices of key raw materials like copper and aluminium, which could pressure margins if not hedged effectively.
• Geopolitical Reliance: The surge in US demand is linked to ongoing geopolitical shifts; a normalization or change in these conditions could impact this new growth vector.

Rating: ⭐⭐⭐⭐

#####Short-Term Reaction 📈 Factors Supporting Upside

• The spectacular earnings beat and raised outlook are powerful catalysts that will likely generate significant positive investor sentiment and buying pressure.
• The declaration of a dividend rewards shareholders and may attract income-focused investors, adding another layer of support for the stock price.

📉 Potential Downside Risks

• After such a strong rally, the stock may be vulnerable to profit-taking by investors looking to lock in gains, which could cause short-term price volatility.
• Any broader market sell-off or negative sector-specific news could temporarily overshadow the company's strong fundamentals.

#####Long-Term Outlook 🚀 Bull Case Factors

• The global energy transition and digitalization are mega-trends creating sustained, long-term demand for power transmission and data cables, directly benefiting Southern Cable's core business.
• Successfully capturing a larger share of the export market, particularly in the US, could transform the company into a significant regional player, driving multi-year growth.
• The new production lines for higher-voltage (33kV–275kV) cables will allow it to compete for larger, more profitable infrastructure projects, enhancing its market stature and margins.

⚠️ Bear Case Factors

• Intensifying competition from both local and international cable manufacturers could erode market share and compress profit margins over time.
• A severe global economic downturn could delay or cancel large infrastructure projects, reducing demand for the company's products and impacting its lofty order book.

#####Investor Insights

• Growth Investors: A strong buy. The company is in a high-growth phase with clear catalysts from its expansion and exposure to lucrative end-markets like data centers and renewable energy.
• Income Investors: Consider. The dividend payout ratio of 20% of H1 profit shows a commitment to returns, though the yield may be secondary to the growth story for now.
• Value Investors: Attractive. The strong earnings growth and visible future revenue stream provide fundamental support that may not be fully reflected in the stock price yet.

Business at a Glance

Southern Score Builders Berhad, formerly G Neptune Berhad, is an investment holding company mainly engaged in the construction management business. The Company is engaged in the provision of construction services including project initiation, planning and design, appointment of subcontractors, procurement, construction project management as well as inspection, completion handover and others.
Website: http://southernscore.com.my

Unveiling Analysis: Opportunities and Risks Uncovered

Financial Performance Analysis

• Revenue Growth & Trends:

  • Revenue for the trailing twelve months (TTM) stands at MYR 221.07M, a significant recovery from the MYR 170.72M reported in FY2024.
  • However, FY2024 revenue declined -19.67% YoY (from MYR 212.52M in 2023), indicating volatility in securing new projects.
  • Key Insight: The recent TTM rebound suggests an improving project pipeline, but historical inconsistency remains a concern.

• Profitability:

  • Net Margin: TTM net income is MYR 40.22M, yielding a healthy net margin of 18.2% (40.22M/221.07M), a strong improvement from historical levels.
  • Efficiency: Return on Equity (ROE) is a robust 25.34%, and Return on Capital Employed (ROCE) is 32.80%, indicating highly efficient use of shareholder capital and debt.

• Cash Flow Quality:

  • Free Cash Flow (FCF): FCF yield is a low 1.35%, and the P/FCF ratio is high at 74.24, indicating weak conversion of earnings into cash.
  • Volatility: Cash flow has been highly volatile, with negative FCF in recent quarters, typical for a construction firm due to irregular project progress billings.

• Key Financial Ratios:

Market Position

• Market Share & Rank: A smaller player in Malaysia's fragmented construction sector. Its MYR 1.31B market cap is modest compared to industry giants.
• Revenue Streams: Revenue is derived from building, infrastructure, and precast concrete services. The recent rebound suggests strength in building construction.
• Industry Trends: Benefiting from the Malaysian government's continued infrastructure spending and development projects under its national budgets.
• Competitive Advantages: Its low debt (D/E: 0.07) provides a significant advantage over more leveraged competitors, allowing it to bid for projects more flexibly.
• Comparisons: Lacks the scale of large-cap peers like Gamuda Berhad but demonstrates superior return metrics (e.g., ROE).

Risk Assessment

• Macro & Market Risks: Exposure to economic cycles; a slowdown in government or private development spending would directly impact new project awards.
• Operational Risks: Project execution risks, including cost overruns and delays, are inherent to the industry. Its low Debt/EBITDA ratio (0.21) minimizes financial risk.
• Regulatory & Geopolitical Risks: Subject to changes in building codes, safety regulations, and government procurement policies.
• ESG Risks: Construction faces ESG scrutiny over environmental impact and labor practices, though no specific data is disclosed.
• Mitigation: Its conservative balance sheet (low debt) is its primary risk mitigation strategy, providing a buffer during industry downturns.

Competitive Landscape

• Competitors & Substitutes: Competes with large-cap firms (Gamuda, IJM Corporation) and numerous smaller private contractors.
• Strengths & Weaknesses: Strength: Exceptional profitability (high ROE/ROCE) and a strong liquidity position. Weakness: Small scale and volatile revenue compared to established, diversified peers.
• Disruptive Threats: Limited threat from disruption; the industry is based on bidding for contracts and project execution.
• Strategic Differentiation: Focus on technical expertise in foundations, earthworks, and precast products may help it carve out a niche.
• News Sources: No recent company-specific news was available at the time of writing.

Valuation Assessment

• Intrinsic Valuation: A high P/E (32.49) and EV/EBITDA (21.58) suggest the market is pricing in significant future growth, making a traditional DCF challenging without overly optimistic assumptions.
• Valuation Ratios: Trading at a premium to its own historical averages on most metrics (P/E, P/B, EV/EBITDA), indicating the stock is fully valued.
• Investment Outlook: The investment thesis hinges on the company's ability to consistently secure new projects to justify its current premium valuation. Major risks include failure to grow revenue and cash flow volatility.
• Target Price: Given the full valuation, a 12-month target price is set at MYR 0.58, implying minimal capital appreciation from the current price.
• Recommendation:
  • Hold: For investors believing in its niche execution and superior ROE, despite the high valuation.
  • Buy: Not recommended at current premium multiples; wait for a more attractive entry point.
  • Sell: For value-focused investors, as the current price appears to have baked in much of the near-term optimism.
• Rating: ⭐⭐⭐ (3/5 – High operational performance but fully valued, presenting moderate risk).

Summary: Southern Score Builders exhibits excellent profitability and a rock-solid balance sheet. However, its high valuation ratios and inconsistent cash flow generation suggest the current stock price offers limited near-term upside, making it a hold for existing investors but not a compelling buy for new ones.

Market Snapshots: Trends, Signals, and Risks Revealed