If not for tax rate having surged from 9+% a quarter and year ago to almost 18% in 1Q09 (due to expiry of tax exemption status of some subsidiaries in China and some provisions which are not tax deductible), bottom-line performance would have been exactly in line with management’s guidance (pretax profit of $27.3mln was flat qoq and yoy, in line with management’s guidance).

With solid working capital management, operating cash flow was a robust $85.2mln, up from $82.9mln last year and $43.9mln last quarter, more than sufficient to cover capex of $7.35mln and share buy back of $6.4mln, increasing cash holdings from $131.6mln to $205.9mln. After debts of $4.5mln, net cash amounts to $201.4mln, representing 40% of its market cap, down from 47% in Feb ’09. But what could disappoint the market is that management is guiding for much lower sales and profit in 2Q ‘09 versus last year’s $281.5mln and $27.1mln repectively, reflecting the global economic slowdown.

And management is also guiding for lower 2009performance due to the adverse market conditions.While this is not a surprise as the market was alreadyexpecting net profit to decline about 20% to $80mlnin 2009, there is a risk for further reduction givenmanagement’s downbeat 2Q ‘09 forecast, guidingfor much lower sales and profits.

With the stock having surged 87% since our upgrade to BUY in Feb ’09, coming close to an important technical resistance coupled with management’s downbeat 2Q ‘09 forecast, we are thus downgrading our call to a HOLD expecting its continued share buy back program, strong financial position and 0.8x price to book to provide support.