Summary: Roly International (Roly) reported weak results for 1Q07, with operating profit down 91% YoY to US$0.25m. At the net profit level, Roly incurred a loss of US$0.34m compared to a profit of US$1.1m in 1Q06. Roly's poor results were mainly due to higher operating expenses at its consumer electronics subsidiary, provision for doubtful debts and additional restructuring costs at buying agency business. Despite the weak 1Q07 results, there was improvement at the operating level on a sequential QoQ basis. It will take some time for the restructuring Roly has taken to show results and we expect its weak performance in 1Q07 to persist through the next 2 quarters, with a probable turnaround in 4Q07. On this basis, we are marking down FY07 net profit from US$10.3m to US$4.6m. Roly's share price has fallen 13% since the announcement of its FY06 results and the stock appears to have discounted the negative factors affecting the Group. Finally in terms of valuation we maintain our fair value of S$0.28 and keep our HOLD rating. (Ng Teck Choon)
