CONTRACT manufacturer MFS Technology may be a small cap company, but its earnings may well set some record highs in the first quarter of this year, some analysts reckon.

Last Friday, the company had also said that its first quarter revenues and profits are expected to outperform results from the fourth quarter in FY05 and even those of FY04 - its quarterly best before the slowdown of orders from Philips Mobile Display Systems (PMDS), its biggest customer previously.

'This would imply more than 70 per cent quarter-on-quarter and 25 per cent year-on-year growth, slightly ahead of our expectations,' said an analyst at CIMB-GK in a research report yesterday.

The analyst pointed out that MFS, which specialises in printed circuit components, still has $150 million to $160 million of backlog orders for fulfilment in the coming months, despite the strong shipments in the first quarter of FY06.

MFS can also power ahead thanks to strong shipment performance from its key customer Motorola, the report noted.

Last month, MFS facilities in Singapore and Malaysia were working seven-day weeks, underpinned by strong demand from its handset customer.

While MFS refused to disclose the handset programmes that it was involved in, CIMB-GK believed that they come as a result of Motorola's new product launches for which volume shipments started at the end of last year.

Motorola is also on track to report strong year-on-year growth in handset shipments for the December quarter, based on information that CIMB-GK has gathered from wireless component suppliers and contract manufacturers.

US-listed sister company Multi-Fineline, which derives 80 per cent of its revenue from Motorola's flexible printed circuit (FPC) business, similarly raised its earnings guidance for the first quarter of FY06 in December last year on the back of exceptionally strong wireless communications sales during the quarter.

In addition, the report noted that the average utilisation of MFS's China facility, which lost $1.8 million, has improved to 60-70 per cent during the period - a rate which will make the plant profitable.

'MFS will continue to relocate volume to China for further cost reduction.

'It will also try to improve the product mix as the facility is now capable of producing multi-layered FPCs ... MFS aims to raise contributions from China to one-third of its revenues by end-FY06 from 20 per cent currently,' the report said.

As a result, CIMB-GK has raised its FY06-08 net profit forecasts by 9 to 13 per cent to factor in new tax incentives and higher margin assumptions.

Likewise, it also raised its price-earnings target from a ratio of 10 to 12 as, 'we believe the valuation gap with its sister company should narrow now that their customer profiles are converging', the analyst said in his report.

CIMB-GK maintained a 'outperform' rating for the stock, with a target price of $1.03 per share.

The company's share price rose three cents to close at 81 cents yesterday.