Miyoshi Precision: Overall HDD outlook still positive

Summary: We met up with Miyoshi Precision Limited (MPL) recently for an update and was told that its HDD business outlook remains modestly positive, still buoyed by good order flows from major customers Hitachi GST (HGST) and Fujitsu. HGST further expects Asia to feature prominently in its 2008 road map but MPL is not going to enjoy the full benefit of HGST's ramp up, given the delay in its new China factory. Separately, further weakness in the USD could result in lower reported SGD sales figures as well a lower gross margin as 40% of its COGS have USD exposure. Due to the weak USD trend and delay in its China plant, we have pared our FY08 estimates for revenue by 4.9% and earnings by 18.6%. We have also reduced our valuation from 9x FY08F to 8x to reflect a more cautious market outlook. Together, this eases our fair value from S$0.325 to S$0.265. However, we remain upbeat about MPL's prospects in the HDD industry and hence keep our BUY rating. (