KENANGA : Techfast - SELL - 18 Mar 2008

Techfast Holdings - FY07 results disappointing... again (Ceasing Coverage)



Price: RM0.29

Target Price: RM0.26

Recommendation: SELL



· 12MFY07 net profit of RM5.1m came in below our forecast of RM7.0m by 27%. This was primarily due to lower demand for SCFs in line with the overall slowdown in the electronics industry as well as losses sustained by its foreign subsidiaries. Techfast China's production was disrupted due to the forced relocation of its factory while Techfast Thailand only began operations in 2QFY07.

· Higher operating expenses and finance costs offset higher foreign sales revenue in FY07. FY07 earnings declined by 15% YoY in spite of a 9% increase in revenue primarily due to a 224% increase in finance costs due to greater loans drawdown for the acquisition of factories in Thailand and Malaysia. The increase in revenue came from a larger contribution from Techfast's foreign subsidiaries. Effective tax rate improved by 4% due to tax incentives given to subsidiaries with pioneer status- Techfast Precision and Techfast Plating.

· Uncharacteristically low demand for SCFs in 4QFY07 caused 18% decline in 4QFY07 sales revenue. QoQ, 4QFY07 net profit fell by 98% corresponding to the decline in pretax profit. The lower pretax profit was mainly caused by the 85% decrease in 4QFY07 EBIT resulting from flat-screen TV manufacturers passing on pricing pressures.

· Revising FY08 and FY09 net profit estimates downwards by 24% and 26% respectively to take into account slowing SCF demand as well slower-than-expected earnings contribution from foreign subsidiaries.

· Downgrade to SELL with target price of RM0.26 based on 7x PER applied to FY09 FD EPS of 3.8 sen. Our previous target price of RM0.38 was based on 8x PER applied to FY08 FD EPS of 4.7 sen. We are ceasing coverage on the stock due to its lacklustre results, and uninspiring prospects in the near-term.







KENANGA INVESTMENT BANK BERHAD (15678-H)

Research Department