In a Bursa announcement yesterday, Sarawak Energy Bhd said it has awarded a LoA to Naim Holdings for the construction of Package B Part I and II of the 275KV Overhead Transmission Line Projects for Bakun-Similajau Transmission System.
Since Leader is likely to be the lead supplier of wires and cables to this project, the company is poised to gain both directly and indirectly. Hence, given improving earnings visibility, we ascribe a higher PER of 8x against 6x previously to the company’s cable and wire division in our Sum-of-Parts valuation. This results in an upgrade on Leader’s target price to RM1.16 from RM0.93 previously. BUY call maintained.
Project in hand? Our checks with sources indicate that this transmission line is part of the second phase of the Bakun-Similajau Transmission System (BSTS). In fact, Leader had previously supplied cables and wires for the first phase of the BSTS, which was awarded by the same party. As such, we believe the cable and wires supply contract for the second phase could well land on Leader’s lap.
Direct and indirect exposure. Besides directly supplying to the BSTS, Leader’s associate company, Universal Cable Sarawak (UCS), would also be Leader’s indirect exposure to the BSTS. UCS is also principally involved in the manufacture of electrical wires and cables as well as sub-contract power and transmission related works. (see page 2 for more details) Optimistic earnings forecast reinforced. We see Leader’s FY10 revenue growing 9.2% y-o-y. Coupled with recovering copper and aluminium prices, the resulting higher margin should well lift its net profit by 21.4% y-o-y over the same period. We see increasing orders from the SCORE region as more transmission lines are installed in the future. Nonetheless, we deem our estimates for Leader reasonably “bullish”, and hence our unchanged earnings forecast. A potential upside catalyst would be higher than expected orders from the SCORE region.
Compelling valuations. Leader’s share price has surged by 17.7% in the past two days following news of a JV between State Grid Corp of China and 1Malaysia Development Berhad to invest in projects in SCORE. As the prospects are improving for Leader’s operations in Sarawak going forward, we are now ascribing a higher PE of 8x against a conservative 6x previously to the company’s cable and wire division in our sum-of-parts valuation. This prompts us to revise upwards our TP for the stock to RM1.16 from RM0.93 previously. Leader remains a BUY.
1 comment:
Leader Universal is now delisted.
This is due to the Selective Capital Repayment exercise which was completed on 21st june 2012
Selective Capital Repayment is to take the company private and for Leader Universal it offerred RM1.10 cash to all minority shareholders.
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