Cheung Woh Tech which does HDD, automotive and solar components said that 1Q ended May ’09 will be profitable and their manufacturing plants have resumed normal working hours while salary of senior management and executive directors have been restored.

On 13 Feb ’09, management had issued a profit warning that 2H ended Feb 2009 would be loss making and the company will be reducing manufacturing hours, cutting management pay be between 15% to 25%.

The latest announcement from the company should not come as a surprise as on 27 April ’09 when they released their full year ended Feb’2009 results, management had sounded optimistic in their outlook statement citing the significant improvement in demand from their customers due to the inventory rebuilding efforts, stimulus package from the Chinese government (part of the package has been given to promote the 1.6 litre engine capacity car category in which its wholly owned subsidary is engaged in), and recovery of the energy market which is benefitting their solar panel component business. These would more than offset the still slow sales from the US, fibre optics connectors and semiconductor markets.

Still, management warned that the macro environment remains volatile and there can be sudden and drastic changes within a very short period of time, affecting business plans and forecasts. Financially the company looks alright with cash of S$9.515mln and shareholders funds of $89mln against short term debts of $11mln and long term debts of $6.4mln, giving a gross gearing of 20% and net gearing of 9%. Last year (ending Feb ‘09) dividend was cut 38% to $2.609mln or 0.8 cents per share due to the 64% decline in profit to $4.2mln. Dividend payout ratio was 62% against 35% in the previous year. According to Bloomberg, insiders of the company own 72.09% of the company.

At 15 cents a share, up from its Feb ’09 low of 4 cents a share, market cap is S$39.14mln, price to book and price to sales is 0.4x, while trailing PE is 9.3x. Our last recommendation in Jun ’07 was a HOLD when the stock was trading at the 30+ cents range.

While the stock looks like good value, trading at the low end of its historical trading range coupled with nascent signs of recovery in its fundamentals, we note that trading liquidity is very poor with the stock not having traded on many days in the last 2- 3 months with average daily volume only about 43,000 shares and with insiders holding a large part of the company. Its small market cap of only $39.14mln is also of no help. We would thus cease coverage on the company.