Hurt by high raw material and staff costs

Below expectations. 2Q09 net profit of S$1.1m (-64.7% yoy) was below NRA expectation, due to higher-than-expected raw material and staff costs. 1H09 results only represent 24% of NRAs full-year forecast. Sales dropped 27% yoy to S$9m. Water treatment revenue increased 27.6% yoy from $2.0m to $2.6m. But it’s more than offset by the decrease from the
engineering services, dropped 38% from S$10.3m to S$6.4m.

EBITDA margins shrank by 13.6% pts yoy, on the back of higher
operating cost. Despite the lower depreciation cost and the decrease in
interest expense (lower borrowing rate for the bank loans of Liaoyang and
Xintai companies) pretax and net profits plunged 62% and 65% yoy
respectively.

Still in net cash position. Despite the group generating some S$2.6m
negative free cash flow (due to the longer cash conversion cycle), the group
ended the quarter still with S$6.5m net cash.

Fair Value S$0.120