Southern Cable Group Bhd announced yesterday that it has secured a RM404 million extension of its long-term supply contract with Tenaga Nasional Bhd. The one-year contract extension covers the supply and delivery of low-voltage (LV) and medium-voltage (MV) underground cables and conductors for TNB’s distribution division. The extension will run until August 2027 and includes an option for TNB to increase the contract value by up to 30%, equivalent to approximately RM121 million.
The latest award brings Southern Cable’s cumulative contracts secured under TNB’s Regulatory Period 4 (RP4) framework to RM929 million.
According to Kenanga Research, the contract is expected to contribute meaningfully to the group’s profitability, particularly if it consists largely of higher-margin MV underground cables and conductors.
Assuming TNB exercises the 30% variation option and the contracts achieve double-digit gross profit margins, the research house estimates the award could generate close to RM60 million in gross profit, representing around 21% of its forecast FY2026 gross profit.
The brokerage believes the variation option is highly likely to be exercised, while additional contract awards are also expected as demand for power infrastructure continues to rise.
Following the latest contract win, Southern Cable’s outstanding order book has increased to RM1.3 billion, equivalent to approximately 0.8 times its FY2025 revenue base, providing healthy earnings visibility over the coming years.
Kenanga remains optimistic on the outlook for Malaysia’s power cable industry, underpinned by TNB’s ongoing grid expansion plans.
The research house pointed to TNB’s recent disclosure of 3.8GW worth of signed Electricity Supply Agreements (ESAs), which signals significant new grid connection works over the next 12 months. These projects are expected to translate into stronger demand for power cables and faster order flows across the sector.
Against a backdrop of tight industry supply and rising infrastructure requirements, Kenanga expects Southern Cable to secure additional contracts from TNB as utilities continue prioritising local suppliers.
Despite the latest contract win, Kenanga maintained its earnings forecasts as the award is in line with its expectation for RM2 billion worth of order book replenishment in FY2026.
The research house also reiterated its Outperform recommendation on the stock with an unchanged target price of RM2.76, based on 18 times FY2027 earnings per share and incorporating a 3% ESG premium.
Kenanga said its positive investment thesis is supported by Southern Cable’s position as one of the few domestic manufacturers capable of supplying TNB’s full range of power cables, its ongoing capacity expansion that is expected to lift production capacity by 12% by 2027, and the increasingly favourable competitive landscape following the exit of a major industry player.
The brokerage also highlighted the group’s expansion into the US export market as a new avenue for higher-margin growth as more products are introduced.
However, Kenanga cautioned that risks to its outlook include potential policy changes, sustained increases in polymer raw material prices, and geopolitical or trade-related uncertainties.
