Friday, July 8, 2011

Leader ... Jul11

TA Securities Research:-

Leader Universal is set for a bountiful harvest in 2H11. The impending big ticket projects such as the KVMRT,
Phase 2 of the LRT extension projects, construction of power plants and sustained demand from Tenaga
Nasional Berhad would see the group through for the second half of the year. Its overseas market demand
looks rosy and should also contribute significantly to the group’s earning.

Demand for Cable & Wires
We believe that the demand for cable & wires would remain buoyant for the remaining part of the year as contractors and project owners are expecting to start sourcing for raw materials for impending projects. In‐progress and upcoming projects such as the KVMRT, LRT extension projects and SCORE works (dams, new transmission lines, sub‐station, smelter plants etc) would be the group’s near to medium term focus its cable and wire supply business.

The company reckons that the demand from Tenaga Nasional Berhad (TNB) is still coming in very strong and is expected to sustain at least until end of FY11. Industry players also noted that TNB’s capital expenditure for fiscal years ending Aug 31, 2011 and 2012 will remain between RM4.2bn and RM4.5bn but could peak to RM6.5bn in 2013 as additional funds would be needed to complete its three new power plants.

Regional demand has also picked up strongly and is expected to sustain over the near term into early next 2012. The group’s global outlook remains robust as demand is still very encouraging and is expected to remain so over the next three to six months. The group guided that they continue to receive orders from customers in the new markets of the African region, South America and the Middle East. Global
outlook is expected to be exceptionally strong for aluminium rod until mid of next year due to the surge of demand (from cable manufacturers) and the shortage of supplies. Its recent breakthrough into South America is also expected to bring positive impact on its second half orders.

Current Order Book – Cable & Wire Segment
As of May 31, Leader’s outstanding order book is RM873.5mn. The group believes that this figure would
be replenished on a month‐on‐month basis and we believe that this figure would be called‐up by year end
FY11.

Power Business
The power generation outlook for Cambodia remains positive. The group noted that Cambodia needs more
new power plant generation capacity to fulfil its load demand, and its second power generation project
which will come on‐stream in mid‐2013 is part of the generation plan of the Cambodian government to meet
this power shortfall.

Recall that in May 2011, the group was rumoured to have been close to securing a USD30mn contract to
help build a power plant in Laos, which the group later announced that there is no truth in the rumour.

The group however noted that it is always on the lookout for new investments in power plant and power transmission projects. We believe that given the group’s present situation where it is currently busy with its two ongoing power projects in Cambodia, we do not foresee the group investing in new power related projects in the very near future, perhaps after the existing projects have been completed and up and running.

Valuation & Recommendation
We maintain our target price of RM1.20/share by pegging a market cap weighted average FY11 PER of 9.8x to it. We are bullish on the stock based on an impending strong demand on the local front for industrial cables & wires and its overseas power generating and supply ventures. Maintain Buy on the stock.

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