Worse than expected. 4Q08 revenue dropped 28.3% while losses ballooned to HK$89.4m as lower utilisation rates due to the reduced demand from Anwell’s customers (that was in turn attributed to the economic downturn) hit home. While higher finance costs and admin expenses had also affected Anwell’s bottomline, the increase seen in the latter is expected to be non- recurring as its initial investment into the solar business had already been accounted for.

Solar remains its only option. As we have mentioned in our previous report, the only way for Anwell to stage a turnaround would be through its solar business as they have invested far too many resources in it and is now highly leveraged on this venture. Given the high expenses that have been incurred due to its solar foray, we are highly doubtful that Anwell’s current OLED and optical media businesses are sufficient to pull itself out of the rut.

Net earnings expected to improve due to exceptionals. Anwell has received a very substantial RMB200m monetary grant from the PRC government as a form of support for its venture into the solar and OLED industries while another RMB100m would be forthcoming. We have ramped up our FY09 earnings in light of this development although we have once again chosen to exclude any potential contributions from its solar business on the basis of being conservative. Stripping out these exceptionals, we expect Anwell to stay in the red for the next two years.

Valuation & Recommendation. Initial contributions from Anwell’s solar business are expected to commence by 2Q09. Until then, we maintain our NEUTRAL recommendation due to its suppressed valuations but deteriorating fundamentals. Currently trading at 0.14x FY09 P/B, we arrive at a target price of S$0.18 (from S$0.16 previously) assuming it trades up to the 50% discount of the industry average of 0.3x P/B.