Key positives: (1) Improvement in margin despite lower sales, reflecting its success in improving yield and controlling costs. Bottom line would have been much better if not for the S$9.2m impairment of property and equipment, S$3.8m provision for onerous contracts, and S$6.1m allowance for inventory obsolescence; (2) Better working capital management and tight capex control. This enabled Hi-P to generate S$26.6m of free cash flow, lifting its net cash position further to S$125.9m or 47% of its current market cap; (3) Higher dividend payment of 2.2cts (vs. 1.5cts a year ago) translating into a decent yield of 7.3%

Key negative: Continuous weakness in revenue, reflecting the tough end market faced by customers. The yoy drop in revenue is also partly due to conversion of some business from full turnkey to consignment mode

Hi-P painted a challenging outlook for FY09, and expects lower yoy revenue in 1Q09. However, it aims to maintain similar profitability through better cost control. Our previous meeting with management suggests that they will be focusing on bottom line in FY09 rather than sales. Also, management aims to generate FCF via controlled capex as well as tight working capital management.

The stock looks attractive at 0.48x P/BV and 2.2x historical earnings with ability to generate strong FCF and sustainable healthy dividend yield of more than 7%.

Technically, the stock has stayed below its 30-day SMA and is now testing its resistance at $0.34 and S$0.375. Both indicators are looking down at the moment. However, the bullish divergence on both augurs well for the medium term. Short term, there could be some weakness which would provide an opportunity to accumulate, preferably near the S$0.26-0.28 support levels.