15 May 2007 Results

G L O B A L T E S T I N G

1Q07: Margins Hurt By Low Utilisation

Global Testing reported 1Q07 net profit of US$0.2m on revenue of

US$13.3m (-23.7% yoy). This was much lower than our net profit forecast

of US$3.4m despite a foreign exchange gain of US$0.9m.

Margins hurt by low utilisation.

which is at the bottom end of the guided range (-18% to -22% qoq).

Demand was affected as customers adjusted their inventories and there

were also fewer working days due to the Chinese New Year holidays.

Demand from the foundry industry was weak, with TSMC reporting a

16.6% yoy decline in revenue to NT$64.9b for 1Q07. Loading from Marvell

was affected by lower volume for HDD controllers. New customer Nvidia

contributed 4% of total sales.

EBITDA margin was unchanged at 54.1% in 1Q07, against 55.5% in 4Q06,

but was significantly lower than the 67% in 1Q06. The deterioration in

margins was due to lower capacity utilisation of 58% in 1Q07 vs 65% in

4Q06 and 90% in 1Q06. Global Testing generated positive free cash flow

of US$7.2m for 1Q07. Gearing was low at 0.31x as at Mar 07.

 Revenue declined 21.8% qoq to US$13.3m,

Overlooked and undervalued.

by 30.5% to US$16.2m due to lower-than-expected capacity utilisation in

1H07. We expect recovery in 2H07, driven by diversification into PC-related

chips with Nvidia and AMD and the XScale project from Marvell. Share

price should be well supported by NTA/share of S$0.26 as at Mar 07. The

stock still offers the cheapest exposure for semiconductor Assembly & Test

with 2007 PE at 9.8x (UTAC: 10.3x), EV/EBITDA at 3.3x (UTAC: 4x) and

P/B at 0.8x (UTAC: 1.5x). Reiterate BUY with target price at S$0.33

(previously S$0.42), or FY07 EV/EBITDA of 5x.

Analyst:

Jonathan Koh, CFA

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