Revenue contribution from newly acquired QZ represented just 8% of total revenue. The QZ acquisition was only completed in Jul-08 and contributed a goodwill impairment charge even before contributing meaningfully to the bottomline. The untimely acquisition of QZ will continue to drag on the Group’s profits.
Net cash per share stood at S$0.22, and capex is expected to drop significantly in FY09F. However, the Group had not declared any dividend. The omission of dividend payout despite the cash pile has raised our discomfort to unbearable levels.
The management does not expect any recovery at least until 3Q09. Overall utilization rates in1Q09 have been observed to be only 50% and are likely to hover at around 40-50% for the full year. The management had painted a scenario of possibly just breaking even in FY09F. We have revised our ASP and margins assumptions, cutting FY09 and FY10 net profit estimates by 76%and 71%.
We have reduced our target price from $0.33 to $0.17 based on P/B of 0.2x, representing the average P/B ratio of its SGX-listed peers. The huge investment outlay on the QZ acquisition and SR-HOY/FDY production facilities is a drain on shareholders’ value especially during this protracted period of demand crisis. As such, we are ceasing coverage on the stock.
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