Tuesday, Apr 04, 2006
The affirmation of Leader Universal Holdings Berhad’s (LEADER) rating of AID reflects the Group’s leading position in the cable and wire manufacturing industry as well as the stable revenue contribution from its power generation business in Cambodia. The rating, however, is moderated by thin margins from its cable and wire products; the large number of players relative to major consumers in the cable and wire industry; dwindling contribution from the property development division and the Group’s high debt-leverage position.
With revenues in excess of RM1 billion for the past five years, LEADER’s strong position in the domestic front stems from the fact that the major cable consumers namely TNB and Telekom, are the Group’s largest domestic customers accounting for 8.9% and 5.9% of its total revenue respectively from the cable and wire segment. The Group made inroads in the international arena exporting about 36% of its products to more than 30 countries worldwide. As at December 2005, the Group had a contractual order book of RM600 million. Moving forward however, LEADER remains challenged to maintain its dominant position in the area of improving operating margins through the enhancement of operational efficiency, costs reduction and the ability to secure significant contracts.
The Group’s power generation unit, Cambodia Utilities Pte Limited (CUPL) was incorporated in 1994 to develop on a Build-Operate-Transfer basis, a 35MW diesel engine heavy-fuel oil fired power generating plant in Cambodia. The electricity generated by CUPL is sold to Electricite du Cambodge (EDC), a department of the Ministry of Industry, Mines and Energy (MIME) of the Government Kingdom of Cambodia. The contract is valid for 18 years (beginning 1997) on a ‘take or pay’ basis. Since 1997, CUPL has been the largest contributor to the Group’s bottom line and this is expected to continue in the near to medium-term.
The Group recovered from a loss position in FY2003, mainly due to write-offs of investments, allowances/impairment in operating assets and rationalisation of subsidiaries, to a pre-tax profit of RM25.4 million for FY2004 on revenue growth of 25.6% to RM1.26 billion. LEADER’s efforts to rationalise and consolidate its business operations produced a stronger financial performance as reflected in higher revenues and profits before tax for FY2005 (unaudited).
Lower cash flow coverages were registered in FY2004 due to larger inventories and receivables arising from higher metal prices. However, the Group’s DSCR of 1.8x is still above the covenanted level of 1.5x. With shareholders’ funds of RM463.8 million as at 31 December 2005 (unaudited), a full draw down on the remaining RM80 million of the MMTN expected in mid-2006 will result in a pro-forma D/E of 1.30x. The risk of breaching the covenanted D/E of 1.30x is somewhat mitigated as part of the funds will be utilised for the redemption of its Euroconvertible Bonds (ECB). Additionally, LEADER has not projected any further indebtedness from 2005 to 2011 and debt leverage is therefore expected to steadily reduce given the staggered maturity and the first repayment of the MMTN expected in 2008.
With revenues in excess of RM1 billion for the past five years, LEADER’s strong position in the domestic front stems from the fact that the major cable consumers namely TNB and Telekom, are the Group’s largest domestic customers accounting for 8.9% and 5.9% of its total revenue respectively from the cable and wire segment. The Group made inroads in the international arena exporting about 36% of its products to more than 30 countries worldwide. As at December 2005, the Group had a contractual order book of RM600 million. Moving forward however, LEADER remains challenged to maintain its dominant position in the area of improving operating margins through the enhancement of operational efficiency, costs reduction and the ability to secure significant contracts.
The Group’s power generation unit, Cambodia Utilities Pte Limited (CUPL) was incorporated in 1994 to develop on a Build-Operate-Transfer basis, a 35MW diesel engine heavy-fuel oil fired power generating plant in Cambodia. The electricity generated by CUPL is sold to Electricite du Cambodge (EDC), a department of the Ministry of Industry, Mines and Energy (MIME) of the Government Kingdom of Cambodia. The contract is valid for 18 years (beginning 1997) on a ‘take or pay’ basis. Since 1997, CUPL has been the largest contributor to the Group’s bottom line and this is expected to continue in the near to medium-term.
The Group recovered from a loss position in FY2003, mainly due to write-offs of investments, allowances/impairment in operating assets and rationalisation of subsidiaries, to a pre-tax profit of RM25.4 million for FY2004 on revenue growth of 25.6% to RM1.26 billion. LEADER’s efforts to rationalise and consolidate its business operations produced a stronger financial performance as reflected in higher revenues and profits before tax for FY2005 (unaudited).
Lower cash flow coverages were registered in FY2004 due to larger inventories and receivables arising from higher metal prices. However, the Group’s DSCR of 1.8x is still above the covenanted level of 1.5x. With shareholders’ funds of RM463.8 million as at 31 December 2005 (unaudited), a full draw down on the remaining RM80 million of the MMTN expected in mid-2006 will result in a pro-forma D/E of 1.30x. The risk of breaching the covenanted D/E of 1.30x is somewhat mitigated as part of the funds will be utilised for the redemption of its Euroconvertible Bonds (ECB). Additionally, LEADER has not projected any further indebtedness from 2005 to 2011 and debt leverage is therefore expected to steadily reduce given the staggered maturity and the first repayment of the MMTN expected in 2008.