Soft 3QFY09 performance as expected. Avi-Tech Electronics announced its 3QFY09 results last evening. Revenue came in lower than expected at S$5.4m, down 69.2% YoY (-47.4% QoQ), due to a scale-back in capital spending among its customers in the face of weakening economic climate. Net profit of S$0.6m, down 78.8% YoY (-70.1% QoQ), was however within our expectation, helped mainly by smaller-than-expected administrative expenses (-61.5% YoY and -38.6% QoQ) arising from forex gains of S$0.4m, lesser depreciation expenses and effective cost reduction measures. For 9MFY09, revenue had decreased by 59.5% to S$24.8m, meeting 71.5% of our FY09 revenue forecast, while net profit slid 58.2% to S$4.3m, or 82.7% of our earnings projection. This downbeat performance (as well as its guidance to remain profitable) is largely in line with management's outlook given during its 2QFY09 results.

Strong financial position to tackle downturn. As the current recessionary economic condition has significantly eroded consumer and business confidence, and slowed down its major customers' business activities, Avi-Tech still expects to face difficult operating environment and downward pressure on its revenue going forward. Notwithstanding that, the group believes that it is in a strong position to weather any prolonged downturn. Over the quarter, we note that Avi-Tech had successfully implemented stringent cost containment measures to stay competitive and kept its bad debt provision at minimal levels. Its net cash position, as of 31 March 2009, also remained strong at S$45.8m (2QFY09: S$46.6m), even after an interim dividend payment of S$1.7m and share buyback of S$0.3m. With still sound financials, Avi-Tech said that it will remain alert to new growth opportunities and seize them as and when they arise.

Maintain HOLD. Despite the soft quarterly results, we feel that Avi-Tech has outperformed its semicon peers (most of which had dipped into the red in this exceptionally weak 1Q09) by staying profitable and cash flow accretive. Regarding an improvement in orders from March onwards as cited by some industry players, however, we prefer to stay conservative as the global economy has yet to show any real sign of a sustainable recovery Accordingly, we have again eased our FY09 forecasts by 5.6-12.1% to reflect a protracted slowdown. Due to limited earnings visibility, we now peg our fair value to 0.65x FY10F NTA from 6x FY10F EPS previously, but our fair value remains unchanged at S$0.11 (still ~15% discount to its net cash/share of S$0.13). Maintain HOLD as strong cash position is likely to provide some support for share price.