Solid 1Q09 with margin expansion. Headline net profit of S$22.6m beat our forecast of S$20m. Excluding provisions of S$9.1m and forex gain of S$3m, core profit would be S$28.6m, some 43% higher than expected. 1Q09 sales fell 10% y-o-y and 10% q-o-q to S$244m versus our forecast of S$228m. Apparently, continued ramp of Research In Motion (RIM) orders has enabled Hi-P to fare better than other handset component makers. The latter saw sales decline 20-30% on average. Notwithstanding lower revenue, gross margin expanded to 20.8%, compared to 20.3% in 4Q08 and an improvement over 18.1% in 1Q08, thanks to better product mix with more value-added processes, decrease in material costs and effective overall cost control.

Strengthening balance sheet. Hi-P continued to generate strong free cashflow of S$78m even though cash conversion stretched a little to 56 days from 46 days. Net cash rose to S$201m, accounting for 40% of market cap at end of Q1.

Going forward, Hi-P expects 2Q09 to be significantly lower than 2Q08, in line with our expectation. For 2Q09, our current forecast is for revenue and net profit to decline 27% yoy and 35% respectively, and down by 16% q-o-q and 21% q-o-q respectively. For the full year, we maintain our net profit forecast of S$79m, down 23% y-o-y, on revenue of S$903m. No change to TP of S$0.62 ( 7x 09 PER) and Buy recommendation.