Leader ... Feb10

S & P on Leader Universal Holdings

Recent Developments

• Leader recently announced that it has entered into a 25-year power transmission agreement with Electricite Du Cambodge (EDC), the state-owned electricity utility in Cambodia, to develop a 230 kV power transmission system from Phnom Penh to Kampong Cham on a Build-Operate-Transfer basis. The project is part of a master plan to develop the power generation and transmission infrastructure in Cambodia that is expected to see installed capacity quadrupling in the next five years. In addition, load demand will more than triple between 2010 and 2024, an 8.5% average annual growth rate.

• The project is expected to cost USD107 mln with the completion and commissioning scheduled by Dec. 31, 2013. Following this, Leader will make available to EDC the transmission of electric power for the duration of the agreement, in return for a power transmission charge. Leader is expected to finance the project on a 70:30 debt to equity basis that will require it to fund approximately MYR36 mln p.a. over the
next three years. With Leader’s net gearing at just 15.8% at end-3Q09, it will be able to comfortably fund the equity portion of the project.

• Leader is also concurrently developing a 100MW coal-fired power plant in Cambodia in which it has an 80% stake. The power purchase agreement was signed in September 2009 with construction targeted to begin in 1Q10 with commercial operations scheduled in 2013.

Recommendation & Investment Risks

• We reiterate our Buy recommendation but lift our 12-month target price to MYR1.00 (from MYR0.92). We continue to use a sum-of-parts valuation methodology. The target price is calculated by: (i) ascribing a 2010 PER of 9.5x (from 8.5x) to the cable and wire division’s projected earnings, (ii) estimating the present value of earnings from its existing 60%-owned power plant and (iii) adding the 2009 net dividend of 2.2 sen. The key DCF assumptions used are WACC of 9% and terminal
value of 3% (all unchanged).

• No separate valuation has been attributed to its Cambodian power projects under development. The higher target multiple for its cable and wire business is to reflect the likelihood of additional cable supplies to Cambodia. Leader now trades at an undemanding 2010 PER of 6.7x, given the improved earnings visibility ahead. We also expect Leader’s share price to gradually build in valuations for its Cambodian projects as 2013 approaches.

• Risks to our recommendation and target price include a sharper-thanexpected slowdown in orders for cables and a higher interest rate environment.