Leader Universal Holding Berhad is basically an investment company involves in the cable and wire industry. It also operates a 35 MW power plant and is currently building another 100 MW power plant. The LEADER Group is the largest cable & wire producer in Malaysia and South East Asia. ( More information about Leader can be retrieved from its website at http://www.leaderuniversal.com/ )

Fundamental Details about Leader.
PER = 5.37
DY = 3.75
MCR = 0.70



Why I like Leader

Cheap Valuation
With PER of about 5.4, Leader is quite undervalued considering the industry it is involving. With the current trend, Malaysia and other south east asia is going to spend a lot of money in developing the basic infrastructure of cable and wire. Some of the upcoming and ongoing project in Malaysia which require a lot of cable and wire include the SCORE in Sarawak, high speed broadband by TM and undersea cable linking Bakun dam with peninsular Malaysia.

Still doing well in this crisis.

If we look at the profit, the company has been hurt by the economy crisis which resulted in his profit decline back to the level of 2006 and 2007. However the good thing is that unlike other company like steel company, Leader still remain in black and manage to rake in good profit although it is lower than FY2008.

Future growth is sustainable
It is quite certain that the government of Malaysia and other SEA countries will not hold back the investment and spending in deploying electric cable and broadband as it is crucial for the growth of the countries. Hence I expect the sales momentum of cable and wire to pick up starting now and continue in the coming years. I expect Leader to record the growth of profit similar to the past several years.

Expansion -- Getting bigger
Leader is aggressively eying the power generation business in Cambodia which generates good cash flow. It has been reported that Leader is likely to involve in a 700 MW power plant in Cambodia. This new 700 MW power plant is 20 times larger than its current power plant and 7 times larger than the new 100 MW power plant.
Leader is also expanding to the middle east. Its wholly owned subsidiary, Leader Universal (Labuan) Limited, has entered into a JV and shareholders agreement with Al-Ghazalah Development Co. and Suasana Daya Sdn Bhd. The JV will enable Leader to bid and undertake power generation projects and supply of related accessories and cables. It might also further involve in the power generation business in middle east.

Upcoming 2010 budget might be a short term catalyst
The soon to be announced malaysia 2010 budget might boost the interest in this company if the goverment continue spending big in developing wire, cable and broadband infrastructure.

Copper prices has rebounded about 100 %
Copper price on the London Metal Exchange, LME has rebounded about 100% from about 1.3 to 2.75. The increase in copper price is going to pull up Leader's revenue. Apart from that, Aluminum prices has increased as well. These two factors is definitely a good news for Leader.


Considering the expansion plan of the company and its potential of the company to achieve high growth rate in the coming years, it is quite cheap to price leader at a PER of 5.4 . Apart from that, Leader manages to give out a dividend yield of 3.8% which is on par with the interest of fix deposit. In my opinion, Leader should be priced at PER of double digit, instead of single digit.

The article below is just my humble opinion about the stock which I think should perform better. It is not a call to buy or sell.

This post has been edited by p1ng: Oct 15 2009, 11:40 PM

Wah!!

Must buy some of that tomorrow!!
Yeah!!

a rebound in copper prices helps its revenue growth..

true but more importantly,
shouldn't a rise in material costs impact the margin, and might hurt profitability?

correct me if i'm wrong please.

Increase in copper and aluminum price will not impact its operating margin because the increase in raw materials price will be passed through to its customers.

The initial rebound in copper and aluminum price might benefit Leader due to higher selling price and revenue. The cost of the raw materials might be low as normally company will buy and keep some inventories before the price hike. Leader also involved in iron mining business (Alpha Industry Berhad) besides producing aluminum and copper through its subsidiary.

Apart from that, the increase of the price of copper which is an important material for cable and wire manufacturing signal the revival in global cable demand. Hence it is a good sign for Leader.

Correct me if I was wrong..

This post has been edited by p1ng: Oct 16 2009, 11:18 AM

mot sure...but look like can buy some to invest

Just want to point out and commend p1ng's 1st post on the subject. Attention all!! THIS is how you SHOULD introduce a counter and get feedback and opinions about it!

Regarding Leader, looks good to me from what I've read. Wish the prices were lower though.

Some time back in Jun 09 OSK come out with the research report on Leader
They target the 12 month price should reach 79. but today it is already 79... can it move much higher?
may be...Malaysia BOLEH kan

This post has been edited by rosdi1: Oct 18 2009, 01:30 PM

>>skidtrader -- Thns for ur comment.
>>rosdi1 -- I think OSK has one more latest research about Leader which priced it at a target price of 0.82.

From my opinion, research report should only serve as our source to get more info about the company. During the bear market, the price of the stock tends to be lower than the target price set by research company. However during bull market, stock price tends to be higher than target price.

Tq for the update. I keep the file for the same reason you mention above.

Just want to find out who the competitors are for this business ?

Leader doesnt has direct competition as it produces wide range of cables and involves in power generation business also.
Nearest competitors are pie, metrod, opcom and wwcable.

PE of 5.4 is deadly worth for a company that has power generation bizness which contributes nearly 50% of its net profit(shuldnt this industry be priced at at least PE of 12x based on its other competitors such as Tanjong, YTLpwer and MMCorp).
Upcoming new constructed 100MW power plant at cambodia at end of 2011 will definitely significantly boosts Leader earnings.

Its cables are sold based on cost pass through to its customers. So it operating margin might be maintained on 4% to 5%. Unlike steels companies that experience high margin during high price and poor margin during low price. So relatively we can say that Leader profit margin is quite stable.

Hi simple plan, If I am not mistaken, you are holding a certain amount of Leader right? May I know what is your average price?

Currently is 0.755. Bought before at 0.60, sold it too early and regret then buyback.

I saw the share price of leader at like RM2 back a few years, why is less than a dollar now?

Due to drop in revenue and profits after the economy crisis.

sorry, i mean like 5-6 years ago?

Hi gomes, This is the 5 years historical chart for Leader. the highest level is in the month of July 2007 with the price around RM1.4. That was just before the crisis unfold.

At 5 years back, the share only traded at the price around RM 0.50.



This post has been edited by p1ng: Oct 18 2009, 10:27 AM

another things is that a few years back leader was not making much money, it was only during the boom times that they started making above 10 eps per share. The years before that it was really low, like 3~5 cents per share for several years.

I didn't have much details about Leader back in about 10 yrs before. I assume the boom time meant by "Flight" is during the big spending time by TNB and telecommunication companies. By looking at the latest 2 quarter financial report, profit of Leader only declined by about 30%. It there was really a boom time before this financial crisis, I would say that the boom time is still here and it wasn't kill by the crisis. Moving forward, TNB is going to spend big in the next several years with the upcoming Bakun project and another several dam project in Sarawak and Peninsular Malaysia.

I manage to find some useful info from OSK report about this company. The conclusion i get is that Leader has made wrong investment during the 97/98 and the late 90s crisis. However, they have written off their investment and settle a 100 Million bond in 2007. I have quoted some useful info which I think any1 who is interested in Leader might want to read it. Enjoy your reading.


(OSK report dated 10 JULY 2007)

A turnaround story. Since suffering from the Asian Financial turmoil coupled with a few
ill-timed overseas investments in the late 90s, LUH had taken bold actions to write off its
investments and fully settled its US$100m ECB bond recently. Inline with the rebound in
the cable & wire industry and stable cash flow from its Cambodian power plant, LUH had
since emerged from the doldrums and now is all set to take flight. With the market still
pricing them at unfavourable single digit forward PER, potential re-rating is high.


Bouncing back... Leader Universal Holdings (LUH), an investors’ darling during its heydays embarked on
some strategic but ill-timed foray into China, India and the Philippines. The situation was further exacerbated
by the US$100m Euro convertible bonds (ECB) issue right before the currency turmoil in 1997. Domestically,
its operations had been affected by a decline in construction activities coupled with a severe cut back in
spending by the national utility companies. The management had since taken bold actions by progressively
disposing off and shut down its overseas operation (refer Figure 1). With its financial status Improving
overtime, LUH made several early redemptions on the ECB and was fully settled in May 2007. With that, we
think the company is now back on track and ready to take flight with huge earning potential ahead.

Back in action… As demand for cable & wire is highly dependent on infrastructure projects, many felt the
crunch during when the severe recession from the 1997 Asian Financial Crisis. The industry is fragmented with
more than 25 players plus numerous smaller players hence price undercutting activities were prominent during
the down market. Nonetheless, the situation has improved following the electronic boom in the early 2000
where major telecommunication companies increased their CAPEX spending to widen its networking coverage.
The improved economy also helped enhance demand for other insulated wire and cables over the same
period. Demand slumped again in 2004 as Malaysia telecommunication industry reached saturation coupled
with lackluster construction activities before recovering again last year (refer Figure 2).

The worst is over! LUH has taken proactive efforts to reorganise its overseas subsidiaries in China, India and
Philippines and finally disposed of all the loss making investments and fully settled its US$100m Euro
Convertible bond in May 2007. We are happy with the gradual financial improvement of the company since
2001 except a bold one-off write down of its overseas investment in FY03 that translate into exceptional losses
for the year (refer Figure 14).

Steep fall in copper & aluminium prices. Although we do not foresee any significant inventory loss when
copper or aluminium prices plunge but we do expect (i) buying sentiment dampened during the down trend or
customers may opt to buy when necessary at spot market, and (ii) some customer may cancel its order hence
some value loss in inventory which was committed earlier at higher prices. Looking ahead, we do not see any
reason for a sharp drop in copper and aluminium price given that it is supported by strong demand worldwide
as well as a structural change in the commodity sector.
( I would like to comment for this part. One forumer has pointed out that increase in metal price might hurt Leader. Actually it is not the increase but the fall which might hurt Leader due to the reason stated above. During the subprime financial crisis, price of copper dropped from 9000 to 3000. Leader was still doing well during that time with only a drop of 30% in profit. )

ah okay, sorry maybe I mis-read it somewhere. Thanks


Thanks.