What leader do?
Leader is an integrated cable & wire manufacturer with subsidiaries involved in the Independent Power Plant and property businesses.
Leader is an integrated cable & wire manufacturer with subsidiaries involved in the Independent Power Plant and property businesses.
Although Leader’s FY08 numbers came in almost spot on with our projection, we are downgrading our FY09 estimates by 11.4% and 0.9% for FY10 amid a challenging business environment. With the changes, our SOP valuation translates into a lower 12-month target price of RM0.68, which still offers a 58.8% upside potential, and thus maintain out TRADING BUY recommendation.
In line. Leader posted a full-year net profit of RM64.9m for FY08, which came in almost spot on with our original estimates despite its 4Q numbers having weakened by 17.8% yo-y and 32.8% q-o-q. Amid the challenging outlook, particularly for 1H09, we are downgrading our projection by 11.4% for FY09 but by 0.9% for FY10. Tough going for cable and wire division. The ripple effects of the financial crisis following the collapse of Lehman Brothers in September ’08 has put the cable and wire division under pressure, with operating profit falling 55.3% q-o-q to RM10.7m in 4Q. While the outlook is cautious, the company’s strong order book of RM800m offers some level of comfort to its bottom-line. In addition, the 5% and 35% drop in electricity and natural gas prices respectively from March 1, ’09 also provide a buffer to its profit margin. We also see huge potential for Leader to ride on the potential demand from the Sarawak Corridor of Renewable Energy (SCORE) as well as other government projects arising from the
stimulus packages but expect more apparent execution from 2HFY09.
stimulus packages but expect more apparent execution from 2HFY09.
Consistent earnings from power division. The company’s Independent Power Plant (IPP) in Phnom Penh, Cambodia, contributed reasonable earnings despite posting an operating profit of RM14.2m in 4Q that was marginally lower by 11.1% q-o-q (refer to Figure 4). On the new IPP projects, the company has recently received approval from the Cambodia government to split the existing 200MW coal-fired power project into two equal parts. Given that Leader now has the full concession rights to develop 100MW compared with its existing 50% share, we do not expect any significant changes in its future earnings stream although we see a delay in commissioning from 2012 to 2013. As we had earlier removed our DCF valuation for the new IPP from our SOP target price, the new date may not impact on our valuation.
Small but positive input from property division. Leader recorded a minor operating profit of RM2m from residual sales in its property development division (see Figure 5). We do not expect to see any new launches in the immediate future.