Unattractive takeover bid by parent company. E&E’s parent company, Kingboard Chemical (148 HK, HK$19.18, NR), recently made a takeover bid for E&E at US$1.20 per share, valuing the latter at only 0.6x historical P/BV. We consider this price unattractive, and would advise shareholders to reject the offer.

Business has stabilised after a weak 1Q09. Business appears to have stabilised since March, with average utilisation improving beyond 70% in the first two monthsof 2Q09 from 60% in 1Q09. Backlog orders have improved to about four weeks from less than three weeks as at end-Dec 08 as OEMs start to replenish their inventories. The improved market conditions coincide with an uptick in the US PCB book-to-bill ratio.

Potential beneficiary of greater demand for HDI boards. The introduction of consumer ultra-low-voltage notebooks should help to drive the demand for HDI boards, which could be positive for E&E. E&E’s Kaiping HDI plant is expected to ramp up gradually in 2H09.

Forecasts and target price unchanged; maintain Outperform. We have kept our FY09-11 profit estimates unchanged. We retain our target price of US$1.89, at 1x P/BV, which we deem reasonable given its leading market position in China, strong free cash flow business, and consistent dividend record.