Group revenue, which came in below our estimates, declined 33.1% in 1H09 to S$9.4m, mainly attributable to the weak market conditions affecting the semiconductor equipment and other related industries. Gross profit margin declined 9ppts to 14% in 1H09 mainly due to unfavorable sales mix.

Selling & distribution expenses and administrative expenses declined 35.3% and 17.3% respectively, in line with lower revenue base and slower business activities as well as an instituted 10~20% pay cut for its senior management since July 2008.

We trimmed FY09-10 sales estimate for manufacturing segment by 35-38% while maintained the estimate for distribution segment. On top of that, gross profit margins in FY09-10 were reduced to 14% and 20% respectively. Selling and distribution expenses were cut by about 40-42% in accordance to the decline in sales. Lastly, admin costs in FY09-10 were reduced by 31-32% on the back of pay cut as well as job credit by government.

We continue to be conservative on valuation grounds by applying discount to 0.6x FY10 NTA (previous 0.4x FY09 NTA), deriving a target price of 9.0 Sg cts. The current price of 9.5 Sg cts has limited downside risk given its 7.5 Sg cts cash per share and healthy balance sheet. Maintain HOLD.