Net earnings were almost on the dot. With reference to Figure 1 & 2, Longcheer saw 4QFY09 revenue of RMB634.6m (+8.7% QoQ, -18% YoY) while net profit came in at RMB38.3m (+34% QoQ, -15.5% YoY) as lower demand for 2G handset solutions in China affected the company. Nevertheless, this was generally inline with our estimates as we were forecasting top and bottomline at RMB534.6m and RMB38.0m respectively.
Outlook remains bullish. We continue to like Longcheer due to the following:
(i) Strong net cash position of 28 S¢ per share as of FY09, representing slightly less than 50% of its current share price.
(ii) A growing 3G market in China where the three Chinese telcos are expected to spend RMB280b from 2009 till 2011 to upgrade their 3G networks – Longcheer’s 3G products jumped more than fivefold YoY to exceed 1.0m units in FY09 and we are forecasting no less than 2.3m units to be shipped in FY10.
(iii) Strong cash flow generating attributes – we expect Longcheer to generate full year operating cash flows of no less than its corresponding net profit in FY10F and FY11F respectively.
(iv) 1QFY10 results to at least match 1QFY09’s revenue and net profit of RMB905.3m and RMB48.9m which still translates to sequential growth of at least 42.6% and 27.7% in top and bottomline respectively.
Valuation. Our forecasts remain generally unchanged given that its results and outlook were inline. We maintain our BUY recommendation and continue to peg our target P/E to a 30% discount of the industry average – target price is therefore increased to S$0.865 (from S$0.56 previously) based on 7.6x FY10 P/E.
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