Sale of M&J Technologies withdrawn. MAP Technology (MAP) announced that it is no longer proceeding with the sale of its subsidiary M&J Technologies (engaged in the design and manufacture of External HDDs) to Fujilink Technology due to funding issues pertaining to the latter. Additionally, it was also revealed that MAP has US$11m worth of trade debts owed by Fujilink which MAP “will vigorously pursue and recover”.

Newsflow is negative. As mentioned previously, we were of the opinion that MAP’s move to divest of M&J for US$32m was a good one as the latter commands generally low gross margins (which we estimate to be at 5%) as compared to MAP’s other business segments. Now that the US$19.6m exceptional gain is no longer forthcoming and coupled with the fact that MAP could see a reduction in its working capital as US$11m worth of accounts receivables may not be recovered, we therefore are expecting MAP to decrease its dividend payout ratio for the current year as compared to 2008.

We have altered our earnings forecast accordingly to reflect the potential contributions of M&J in FY09 and FY10 while stripping out the US$19.6m exceptional gain. Dividends have also been adjusted downwards – note that other downside risks to MAP’s share price still exist in the form of the unresolved issue over Jurong Tech which has 73.1m shares of MAP.

Valuation & Recommendation. Currently trading at 12.6x FY09F P/E and assuming MAP trades down to the industry average of 10.5x, we alter our target price to S$0.16 (from S$0.22 previously) and maintain our SELL recommendation.