Sales decreased 59.1% to S$15.5m in 1H09 compared to 1H08 as demand for the company's products fell in both EMS and OEM segments. Revenue from its principal customer declined by S$11.9m or 61.8% as compared to previous year. On top of that, Kinergy was not able to meet the projected sales from its new customer, Veeco Investment Inc., due to depressed economic condition.

Gross profit was barely at breakeven level due to severe shortfall in sales volume. Marketing and General Admin expenses were much lower by S$1.3m as compared to corresponding period last year. This was achieved by austerity measures such as lay-off of excess workers, pay cut ranging between 5-15%, shorter work week and strict budgetary control.

S$0.3m capex was expended in the setting up of a new manufacturing facility in Ang Mo Kio TechPlace II. The new project is expected to commence in August 2009.

The company has obtained a Bridging Loan of S$5m from UOB Bank as part of the Special Risk-Sharing Initiative programme from Singapore government. The installment period of the loan is 48-month.

Cut sales by 34% for FY09 and 15% for FY10 on account of potential S$20m contribution from new project in FY10. Trim GPM by 3 ppts in FY09. Reduce both admin cost and marketing cost by 23-25% for FY09-10.

Better customer base: Kinergy has been under enormous pressure of sluggish global demand for semiconductor equipment. The order book for capital equipment remains weak although the worst seems to be over for global economy. In addition, Kinergy's heavy reliance on one key customer, K&S, has also taken tolls on its sales volume significantly. Notwithstanding that, effort by management to diversify customer base has borne fruit, as evidenced by the recent announcement citing the agreement signed with a leading US based semiconductor company to produce next generation machines. Kinergy expects the production of machines to commence in 4Q09 with potential revenue of S$20m for year 2010. Upgrade to HOLD recommendation with price target of S$0.12: Given the recent upward revision of semiconductor manufacturing valuation, we increased our NTA multiples from 0.4x FY09 NTA to 0.6x FY10. Therefore, we derive a target price of S$0.12.