Results in line with our forecasts. Leeden’s 1H09 results were in line with our previous forecasts with revenue of $93.9m, gross profit of $26.8m and net profit of $7.6m. These figures made up 50.2%, 50.0% and 51.8% respectively of our last FY09F forecast. Gross and net margins at 28.6% and 8.0% were also consistent with our previous estimates of 28.7% and 7.8% correspondingly.

Increased debt levels but healthy cashflows. We draw caution to Leeden’s debt levels on its balance sheet, which has increased due to consolidation of new subsidiaries acquired. Total debt as of 1H09 was $60.5m and net gearing was 0.50x. Operating cashflow for this half-year however was healthy.

Demand is there. Even though the marine, oil & gas industry is weighed down by order cancellation news, shipyards had accumulated huge orderbooks from previous years, spanning up to early 2012. These orders still need to be fulfilled and we believe this contributed to Leeden’s resilience in the midst of the financial meltdown. However, there would be margin pressures from customers and competitors going forward. Leeden has also indicated that they sacrificed some margins in order to gain market share in 1H09 for their welding business.

Looking to further expansion. Leeden has generally completed its phase of consolidating its core businesses to focus on welding, gas and safety. It is looking to further expand its business through:
 Expanding its regional presence and growing organically
 Extending its services to industries like infrastructure and aerospace.
 Offering its own house brand products.

We believe that these efforts should yield more positive results as the economy recovers.

Valuation & Recommendation. With steady increasing topline, we think that Leeden has bucked the trend for companies servicing the marine, oil & gas sector. We are also positive on the company’s prospects. We have adjusted our revenue forecasts for the next 3 years upwards by 2.7% to 11.6%. EPS forecasts also increased correspondingly. We value Leeden at $0.42 based on 6.2x FY09F P/E, a 10% discount from its peer average of 6.9x because of its smaller market cap. This is a 27% potential upside from its current share price. We upgrade our recommendation on the stock from HOLD to BUY.