Leader Universal expects diversification to pay off by 2013

Monday, 25 October 2010 00:00

Leader Universal Holdings Bhd is expecting its diversification away from its core business into power transmission and distribution to bear fruit within three years.

Leader Universal, which has its mainstay in manufacturing wire and cables, made its foray into the power transmission and distribution business in 1994 by building electric transmission cables and power plants in Cambodia.

The company is currently building a 100MW coal-fired power plant near the port city of Sihanoukville, Cambodia, which is funded by a syndicated term-loan facility and internally generated funds.

It undertook a financing facility of US$140 million (RM436 million) for the project and has seven years to repay the loan, with an option to extend the repayment period by another two years, subject to its lenders’ approval.

Besides power generation, Leader Universal is also building a 230kV, 110km overhead transmission line linking two substations near Phnom Penh.

The transmission project is partly funded by bank borrowings of US$65 million, payable over 13 years commencing from 2010, from Export-Import Bank of Malaysia Bhd and by internally generated funds. The cost of the entire power transmission project is estimated to be US$107 million. It is targeted for completion by mid-2011, while the substations north of Phnom Penh are expected to be ready by early 2012.

Based on Leader Universal’s latest quarterly report, its long-term borrowings are RM130.38 million while short-term borrowings are RM224.33 million, on the back of total equity of RM667.78 million.

The company, which derives only 6.55% of its revenue from the power transmission segment, expects to see this figure grow to about 20% by FY2013 ending Dec 31.

“Yes, we will see both projects completed by 2013. Currently, over 90% of our revenue is contributed by the wire and cables division,” says Leader Universal’s investor relations official Albert Wong.

Indeed, the company’s revenue for 1HFY2010 was RM1.22 billion, a rise of 33.3% from the corresponding period a year ago. Net profit was RM25.1 million, compared with RM26.2 million for the same period last year.

Earnings per share for the six months stood at 5.75 sen, while net tangible assets per share was RM1.25 on the back of a market capitalisation of RM384.08 million.

On Leader Universal’s outlook for 2H2010, Wong says the company is expected to achieve “better results” compared with the same period last year, barring any unforeseen circumstances.

The company recorded revenue of RM918.76 million for the first six months of FY2009. If it is able to repeat its performance this year, its annualised revenue could hit RM2.45 billion. This is almost equal the RM2.54 billion recorded in 2008, before the US subprime crisis hit the world economy, and also 25.6% higher than the RM1.95 billion revenue achieved in FY2009.

However, it should be noted that Leader Universal saw a 33.5% drop in its cash and bank balances for 1HFY2010 to RM135.11 million, compared with the same period a year ago. Its net cash flow from operations also dropped to RM23.92 million, from RM205.91 million.

Wong attributes this to the company’s increased sales, which led to an increase in working capital requirements and resulted in increased debtor balances that were not due for collection yet.

Wong is confident that a steady stream of jobs coming in will keep the company busy over the next few years. Among the projects he cites are
1. the RM40 billion mass rapid transit,
2. RM26 billion KL International Financial District,
3. RM5 billion 100-storey Warisan Merdeka Tower,
4. six highways,
5. schools and
6. hospitals.

Leader Universal also expects to benefit from the Sarawak Corridor of Renewable Energy programme and the implementation of other projects under the Ninth Malaysia Plan worth RM7 billion.

Leader Universal’s associate, Sarawak Cable Bhd, is the front runner to land plump jobs to provide cables in the state. Among its shareholders are Sarawak Energy Bhd, the sole electricity supplier in the state.

Leader Universal’s optimism in Cambodia is premised on its young population hungry for power as the country develops further. It is not a new market for the Penang-based company, which has been looking at Cambodia for some years now.

Given its persistence and expanding power plant business in Cambodia, the company’s diversification is expected to pay off in the years to come.

This article appeared in Corporate, The Edge Malaysia, Issue 829, Oct 25-31, 2010