THE prevalence of multimedia applications and the replacement market will continue to spur demand for colour handsets. While MFS' growth remains telecoms-driven, customer diversification is clearly underway. Contributions from new customers such as Cellon, Philips Optical Storage and TMD will begin to feature prominently in FY04. Growth of its PCB business will be underpinned by healthy demand for high copper content and multi-layer boards, which command higher ASPs and margins. We are maintaining our fair EBITDA multiple of 7.6x on upgraded FY05 estimates. However, the strong positive outlook appears priced in at current levels. Downgrade to FULLY VALUED.

- DBS VICKERS SECURITIES, Dec 1.

ALTHOUGH revenue surged 138 per cent to S$282 million, it was 4 per cent below our forecast, with the shortfall coming from the flexible circuits (FC) segment. On a half-on-half basis, 2H03 revenue of S$141.4 million was flat. As expected, weakness in 3QFY03 (in the wake of Sars) gave way to a very strong 4QFY03 driven by the introduction of new handset models with colour displays. The telecoms segment (mainly handsets) accounted for 81 per cent of FY03 revenue, up from 63 per cent in the previous year. EBITDA margin of 13.9 per cent was 0.1 percentage point better than our expectations, and is a marked improvement over the 11.7 per cent in FY02. This stemmed from a strong demand in flexible circuits, and the substantially higher utilisation, which has averaged about 85 per cent for the year. Net profit of S$23.1 million was 6 per cent below our forecast, but would have been closer to our target if not for a S$800,000 deferred tax expense related to the Malaysian operation. FY03 EPS was 5.3 cents, up 278 per cent from FY02 and ahead of consensus. We will be adjusting our forecasts, but, nonetheless, we believe MFS should be able to surpass the management's guidance of 25 per cent growth rate for EPS. Industry fundamentals remain solid, as capacity for FCs continues to be tight worldwide. For MFS, upside to growth could be capped by capacity constraints until the new plant in China comes on stream in 3QFY04 (mid-2004). At last Friday's closing of $1.23, the stock is not cheap and hence we will be reviewing our BUY call.

- GK GOH RESEARCH, Dec 1.