MERRILL LYNCH, April 13

IN view of slower-than-expected ramp-up of utilisation at the new Changsha facility as well as a shift in product mix, we are lowering our earnings estimates for FY05 by11.6 per cent to $48.1 million and FY06 by 11.2 per cent to $61.4 million.

With strong free cash-flow generation, ROE in excess of 30 per cent and a chance of higher dividend payment we feel that valuations are still attractive at 10x our revised FY9/05 EPS estimate.

Maintain BUY with a lowered price objective of $0.90: As a result of lower earnings estimates, we are decreasing our price objective to $0.90 based on 12x FY05E EPS and 9.4x FY06E EPS. Key risks are shortage of raw material, sudden collapse in demand or loss of key customer and intense competition.

We estimate current utilisation of MFS' Singapore and Malaysia plants to be in the region of 70 per cent due to the seasonally slow Chinese New Year quarter, but we expect capacity to be ramped to full utilisation towards the end of FY3Q05 to cater for new Motorola programs. Growth is expected to be very much back-end loaded with a strong 4Q FY05.

Robust PCB operations: PCB operations are seeing strong momentum due to higher server demand in China. PCB capacity in Changsha is fully utilised and management cited good pricing power. Power supply concerns affecting MFS in Changsha in January have been resolved.

- BUY