PHILLIP SECURITIES RESEARCH, March 31

MULTI-FINELINE Electronix Inc (MFLX) announced that it intends to make a voluntary conditional general offer to acquire all the issued ordinary shares of MFS Technology (MFS), subject to the satisfaction or waiver of certain pre-conditions as set out in the announcement released by MFS. MFS shareholders have the option of either accepting cash or MFLX stock.

The cash consideration with respect for each share of MFS stock will be either S$1.15 per MFS share if less than 90 per cent of MFS shares are tendered, excluding shares already held by M-Flex, its related entities or their respective nominees; or S$1.20 per MFS share if at least 90 per cent of the shares held by MFS shareholders are tendered. The stock consideration consists of 0.01450 shares of M-Flex common stock for each MFS share tendered. An MFS shareholder may accept the cash consideration or stock consideration but not both.

Based on M-Flex closing stock price of US$63.82 and a USD/SGD exchange rate of 1.6227 on March 28, the stock consideration values MFS shares at S$1.50 each. MFS shareholders who choose to accept the offer through the stock consideration will be subject to a six-month moratorium after the closing of the offer.

WBL Corporation, which is a substantial shareholder of both MFLX (61 per cent) and MFS (56 per cent), has given an irrevocable undertaking, subject to shareholders' approval, to accept MFLX's offer by stock consideration.

The cash offer values MFS at 15.5 times (if offered at S$1.15) to 16.2 times (if offered at S$1.20) our FY06E EPS, and the stock consideration (based on MFLX overnight close of US$59.34) values MFS at 18.8 times our FY06E EPS.

We called a 'sell' on MFS on Feb 9 based on our belief that valuations are stretched, and our view that if the rumoured acquisition does not materialise the stock can potentially retrace to the mid-80 cents level.

In other words, we felt that it would make more sense for an investor to cash out at S$1.04 following a 75 per cent share price appreciation in four short months.

Given the slightly higher multiples that are being offered by MFLX, we believe it is now even more compelling for shareholders to take profit, if they have not already done so. While MFS shareholders will theoretically get a higher valuation of S$1.40 for their shares if they chose the stock route, based on MFLX's closing price of US$59.34 on 30th March 2006, they will be subjected to a six-month moratorium and the risk of an unknown MFLX share price at the end of the moratorium period.

- SELL