Below expectations. 4Q08 net loss of S$32m (S$9.7m profit in 4Q07) was wider than our assumption of S$16.7m because of lower-than-expected sales, and higher- than-expected opex and write-offs. Full-year net loss of S$17.9m was much larger than our loss forecast of S$2.4m.

Sales contracted 24% yoy to S$217m in 4Q08, as there was a sharp decline in orders, especially from mid-4Q08 onwards. In terms of notebook casing volume, the contraction was even steeper at 34% yoy (4.9m units vs. 7.4m a year ago), worse than the combined volume of the top-5 Taiwanese notebook ODMs, which was up 25% yoy to 31m units. This suggests further market-share loss.

EBITDA margins slipped into negative territory in 4Q08, hit by a combination of: 1) lower sales; 2) higher opex; 3) inventory write-offs; 4) forex loss; and 5) retrenchment charges. As a result, a huge loss of S$32m was incurred in 4Q.

Net gearing improved from 0.63x as at end-September to 0.53x, as a result of better cash cycle days (aided by shorter inventory days) and lower capex in 4Q. As suspected, the company did not declare any final dividend vs. 0.8ct a year ago.

Tough times ahead. We believe Huan Hsin’s notebook casing business will continue to be affected by the slowdown faced by its Taiwanese ODM customers, which are expected to post flat yoy shipment growth in 2009. To conserve cash, Huan Hsin will be keeping its capex in 2009 below S$15m, a fraction of the S$119m in FY08. It will also focus on improving its working capital and consolidate its facilities in China as well as reduce its workforce to lower costs.

Cutting forecasts; target price reduced from S$0.26 to S$0.25. We now expect losses again in FY09 due to an anticipated weak 1H (vs. net profit of S$15m previously), and have slashed our FY10 profit forecast by 64% to assume slower sales and margins. We also introduce FY11 forecasts. Our target price, still based on 0.3x P/BV, has been lowered from 26cts to 25cts. Maintain Neutral as downside should be limited by its historical low P/BV. We would advise investors to switch to Meiban (MEI SP, S$0.145, Outperform) for plastic exposure.