Venture reported net income of S$167mn (down 44% YoY) and sales revenue of S$3.8bn (down 2.3% YoY) in FY08. If we excluded the S$114.5mn mark-to- market CDO loss & S$6.3mn impairment loss on an associate, operating income was down merely 3.3% YoY. Despite huge CDO loss, the company announced a final dividend of 50 cents per share for FY08.

After S$56.9mn mark-to-market CDO loss in 9M08, VMS wrote-down another S$57.6mn in 4Q08, which brought the total mark-to-market CDO loss to 114.5mn in FY08 (Vs S$16.2mn in FY07). We expect the CDO loss should come to an end in FY09 because VMS only has CDOs worth S$ 18.8mn on the books or 11% of the host value by the end of 4Q08.

In our view, FY09 is likely to be a challenging year for VMS. But we believe best of class design & manufacturing capabilities & economies of scale should help VMS to increase market share among existing customers and secure new customer qualifications, partially offsetting the impact from the global slowdown and making it one of the most competitive high-mix design-oriented manufacturers.

We have cut our earnings estimates by 16%/19% respectively for FY09/10E but reiterate our Buy rating with reduced PO of S$ 6.1. Venture is now trading at 5x FY09E P/E, which we believe is very attractive compared to its global peers. We continue to like VMS’s competitive position, economies of scale, and R&D capabilities in the high-mix ODM universe, which differentiates it from its peers.