JP MORGAN, July 4

MFS expects shipments to Motorola to be further delayed with the ramp-up now expected in August compared with July. As we have highlighted earlier, MFS is seeking approvals from Motorola to supply FPC for the Razr and become a third source with potential allocation of one-third of the volume.

Razr itself is going through some feature enhancements based on our checks. Its success is also resulting in Motorola delaying launch of some of its other models on which MFS is working.

We have reduced our FY05E/FY06E EPS estimates by 7.88/1.4 per cent because of delay in ramp-up of shipments to Motorola. We now expect 20 per cent quarter-on-quarter revenue growth in 4Q FY05 and 19 per cent q-o-q revenue growth in 1Q FY06 driven by ramp-up of volume to Motorola after a rather flat 3Q FY05.

MFS stock price mirrors q-o-q sales momentum and we expect the same in 4Q FY05/1Q FY06. Maintain 'overweight' with a reduced December 2005 price target of $0.77 based on 12.5 times CY05E EPS. This suggests a 21 per cent upside potential from current levels. MFS also offers a dividend yield of 3.2 per cent.

Key risks include: slowdown in handset demand and loss of market share by Motorola and MFS's inability to ramp up production in 4QFY05/1QFY06 due to further delays or ramp of China factory.

- OVERWEIGHT