Margins improving but outlook uncertain


Results above expectations. Despite 3Q08 sales coming in 10% below
our expectation, net profit of S$3.5m was 30% above our S$2.7m
expectation, due to S$1.5m forex gain in 3Q08.

EBITDA margins improved by 4.6% pts yoy, due to cost savings from
relocating Singapore’s manufacturing plant to Malaysia. The group is
expecting the relocation to be completed by end of this year. Together with
S$1.5m gain from forex, 3Q08 pretax profits surged from S$0.01m to
S$4.4m.

Building up orders from automotive segment. Allied currently produces
car wipers for Tricor and brake covers for Bosch in Shanghai and Suzhou
plants. For the nine months, automotive products contributed 2% of its total
sales.

Healthy balance sheet. Allied generated S$5.9m of positive free cash flow in 9M08 as a result of higher profits and controlled capex. As a result, the company ended the quarter with a 27% net gearing, reduced from 47% as
at end 2007.


Outlook remains challenging. Although bottom line is improving, NRA
remain cautious of the negative impact of the global economic crisis on
consumer spending on IT products. Traditionally, 4Q is the weakest quarter
for Allied Tech. But on the bright side, management says raw material prices are stabilizing now. The strengthening US dollar against Asian currencies will also benefit Allied Tech.

Raised FY08 forecast, maintain Neutral. Raised FY08 EPS forecast by 36% to factor in higher other operating income but keep FY09-10 number unchanged.

Fair Value S$0.055