SCGB set for big MRT3 boost

PETALING JAYA: Southern Cable Group Bhd (SCGB), with a favourable track record as a contractor for the development of the Mass Rapid Transit 2 (MRT2), is seen to benefit from the upcoming MRT3 project.

According to Apex Research, the group is well positioned to capture a significant portion of the MRT3 cable supply package due to its track record of comprehensive product offerings and market leadership.

The research house anticipates a significant increase in SCGB’s earnings over the medium term, based on its forecasts.

“Assuming a cable supply package value of RM600mil, a 60% market share, and a blended gross profit margin of 15%, the MRT3 could contribute RM54mil in gross profit, or 25% of our financial year 2025 (FY25) forecast,” it said.

“More critically, we highlight that growth is now constrained by capacity, not demand.

“With surging demand driven by national infrastructure projects, data centre investments and energy transition initiatives, capacity expansion is emerging as the key bottleneck,” Apex Research added.

It noted that it may be necessary to add further to the group’s plans for capacity expansion.

This targets production capacity growth of 20% to circa 60,000 km per year in the next two years.

A more aggressive capital expenditure rollout could position SCGB to capture even larger volumes, which would mean further upsides to its earnings forecasts, it said.

The research house estimated SCGB’s cable supply package to be valued at some RM600mil for the MRT3, as the length is comparable to the previous MRT2 project.

“For rail infrastructure projects, cable supply contracts are typically spread across several main work packages, including power supply systems, signalling and control systems, track-related work and station-related work,” it said.

“As a reference, the MRT2 spanned 52.2 km and included 36 stations, with a total project cost of RM56.9bil and cable supply contracts estimated at circa RM550mil based on channel checks,” Apex Research added.

The group is also anticipated to benefit from other projects, including the Penang Light Rail Transit.

Based on this, Apex Research revised its earnings forecasts upward by 9.5% and 18.5% for FY26 and FY27, respectively.

“Note that cable orders for large infrastructure projects involve multiple packages distributed through several layers of subcontractors, resulting in staggered purchase orders rather than a lump sum in SCGB’s order book,” it said.

In its latest report, Apex Research maintained its “buy” call on SCGB with a new target price of RM2.14, an increase from RM1.72 before. It raised its price-to-earnings (PE) multiple from 15 times to 17 to reflect SCGB’s improving earnings visibility and robust growth outlook.

The research house said SCGB’s valuation remains undemanding, with a PE-to-growth ratio of 0.4 times, based on its projected earnings compounded annual growth rate of 33.9% for FY24 to FY27.