Leader Universal Holdings Berhad’s (Leader) rating on its RM150.0 million Murabahah Medium Term Notes Issuance Programme has been affirmed at AID. The affirmed rating reflects Leader’s status as the market leader in the highly competitive cable and wire industry, the relatively stable profit contribution from its power generation business and its improving gearing levels. These factors are moderated by cyclical cable and wire sales as well as an intense competitive environment characterised by thin profit margins. MARC maintains a developing outlook on the rating.

Since our last rating action on Leader on November 7, 2007, it has announced a reconfiguration of the 200MW coal-fired power project in Cambodia which was to be undertaken by a 50:50 joint venture company owned by Leader and Cambodia’s MKCSS Holdings Co. Ltd. The development of the 200MW power plant will now be undertaken as two separate 100MW projects with each joint-venture partner obtaining full concession rights for their respective 100MW power plants. The proposed 100MW power plant will be undertaken on a Build-Own-Operate (BOO) basis in Sihanoukville, and construction is expected to begin in early 2010 with completion in 2013. Pending greater clarity on the financing aspects of the second power plant, the outlook on the rating is developing. In the near-term, MARC expects Leader to maintain its dominant position in the domestic cable and wires industry which should support stable revenue generation, although expected slower demand into 2009 will pose challenges for the group.

MARC understands that the project, similar to its existing power plant, will be financed on a project financing basis with equity contribution of about RM170 million (approximately 30% of the total project cost). Notwithstanding the significant recurring income that would be contributed by the power plant in the future, should Leader’s equity contribution be funded by its available cash resources which stood at RM178 million as at end of unaudited FY2008, MARC is of the view that there would be a weakening in Leader’s credit metrics.

Leader is an investment holding company and through its subsidiaries, is involved in the manufacture and sale of power and telecommunication cables and wires, property development and power generation. Listed on the Main Board of Bursa Malaysia, it is the largest cable and wires manufacturer in Malaysia and Southeast Asia.

For the financial year ended December 31, 2007 (FY2007), the group recorded a 19% increase in revenue to RM2,823 million arising mainly from the pass-through of the higher cost of copper and aluminium, and a 43% increase in profit before tax to RM94.5 million resulting from ongoing internal cost rationalisation measures. Cash flow from operations (CFO) which almost doubled to RM156.4 million contributed to favourable CFO interest coverage of 4.35x (FY2006: 0.05x) and CFO debt coverage of 0.23x (FY2005: 0.05x). Its debt gearing ratio improved to 0.97x (FY2006: 1.13x).

For the financial year ended December 31, 2008, unaudited, the group registered almost 10% decline in revenue to RM2,541 million compared to FY2007 on account of lower cable and wire sales arising from softer domestic and global economic growth. Margins remained firm with the group recording a pre-tax profit of RM102.0 million, which was 7.9% higher than last year. Further debt reduction saw gearing ratio improve further to 0.71x. Its short-term borrowing requirements for working capital are expected to ease from its December 2008 level of RM308.4 million along with the fall in commodity prices.

Contacts:
Khairul Muzamel Perera 03-2090 2247/ kevinkhairul@marc.com.my;
Francis Xaviour Joe 03-2090 2279/ fxjoe@marc.com.my