• The group said that the current financial turmoil has brought much uncertainty to the global economic outlook and it expects the challenging conditions to remain for some time.
• As such, the group expects FY08 result will be significantly weaker as compared to FY07.
• It also mentioned that persistent cautious spending attitudes continue to affect sales while higher production costs continue to exert pressure on margins.
• This news does not come as a surprise as we mentioned in our initiation report yesterday that earnings visibility of CPOW has deteriorate over the last few quarters.
• The PRC market has always been the group’s main revenue generator. However, we think that a continuous slowdown in China could is weighing down on the group’s performance in FY08-09.
• With China accounting for only 49% of revenue in 9M08 (down from 65% in 9M07), the outlook does not look sanguine, especially with a lack of new product launches.
• Target price cut. We reduce target price from S$0.08 to S$0.04, as we assigned another additional 50% discount to the 3.5x CY09 P/E to the stock, as negative sentiments of S-Chips are mounting high in the last couple of days.
• Downgraded to SELL. We believe that a lack of catalysts and its smallish market capitalization, could cap a re-rating of the stock in the near future. More importantly, the profit warning issued will be perceived negatively by investors, and stock could see fresh selling pressure. Downgraded from Neutral to Sell.
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