China Taisan - Poor 1Q FY09 results were a forgone conclusion

We maintain our 3 (Hold) rating and six-month target price of S$0.13 for China Taisan Technology Group (China Taisan), in view of its weak 1Q FY09 results and uncertain outlook. Our target price is based on an improved peer-average PER of about 3x (from 2.5x) on our revised-down earnings forecast for FY09.

China Taisan recorded a 1Q FY09 net profit of Rmb33.9m, down 47.5% YoY and 11.3% below our estimate. The company’s performance was affected by a decline in sales volume and product margins, as a result of slower demand for sports-apparel products in China, as well as an increase in domestic competition. The bottom-line was affected by a foreign-exchange loss and higher depreciation charges. Consequently, we have revised down our earnings forecasts for FY09 by 14.5% to factor in the prospects of further weakness over the near term.

However, China Taisan’s net-cash balance improved to S$0.10 per share at the end of March 2009, from S$0.06 per share at the end of December 2008, due to a decline in trade and other receivables. We expect the company’s strong cash position and a forward dividend yield of about 9.2% (based on a commitment to pay out at least 30% of its FY09 net profit) to provide support for the share price in the absence of a positive earnings-growth outlook.

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