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To: William G. Foley who wrote (1322)	9/9/1999 8:14:00 AM
From: Ron Bower	Read Replies (1) \| Respond to of 1418

Who supplies VTECH? Thursday September 9, 6:44 am Eastern Time CSFB says four HK manufacturers looking long-term HONG KONG, Sept 9 (Reuters) - Credit Suisse First Boston said on Thursday that Chen Hsong Holdings Ltd , Johnson Electric , Legend Holdings and VTech Holdings are among the best buys in Hong Kong's manufacturing sector. ``A common thread among these companies is management's ability to think longer-term,' Vijay Harjani, the investment bank's vice president and analyst, told reporters at a briefing. ``They're really sitting down and thinking about designing and planning of their products. They're spending on research and development, and, most importantly, they're implementing a professional marketing programme.' Johnson Electric, the second largest manufacturer of micro-motors globally, had restructured and reduced production costs by revamping manufacturing processes and negotiating cheaper raw materials prices with suppliers, Harjani said. As a result, Johnson's earnings before interest, taxes, depreciation and amortisation (EBITDA) margin had risen to 32 percent in fiscal year 1999 from 28 percent in 1998, Harjani said, giving it the highest EBITDA margin for any industrial firm in Hong Kong. Harjani said the catalyst to Johnson's continued share price appreciation was making micro-motors for new products, such as DVD players and lumber support in car seats. ``We remain firm buyers of the counter and would label it as a must-have stock. It is really the Rolls-Royce of industrials in Hong Kong,' he said. VTech, an electronic learning and telecommunications product maker, was experiencing a trough in earnings and was on the acquisition trail, Harjani said. VTech currently held over 50 percent market share of 900 MH cordless phones in the United States and had about US$100 million in net cash. Harjani said VTech management had told him it was in negotiations with Lucent Technologies (NYSE:LU - news). ``They (VTech) are negotiating with Lucent Technologies. They will fork out about 10 percent of their investment. They will get private investors to fork out about 90 percent of the investment, and possibly buy out the cordless phone division of Lucent,' he said. Harjani stressed the deal was in negotiations still. He estimated the price of an acquisition could be US$800 to US$850 million, and add about US$300 million to VTech's revenue profile. ``Trading on fiscal year 2000 price to cash flow multiple of 5.3 times, we believe that the recent under-performance in VTech share prices should reverse and we think the stock has plenty of mileage in it,' he said. Chen Hsong, which makes plastic injecting moulding machines, had suffered under the Asian crisis with 85 percent of sales to greater China. But Chinese industrial production was rebounding after a slump in 1997 and Chen Hsong's management had noted a healthy increase in audit books. Harjani said Chen Hsong was a strong recovery play and expected earnings per share (EPS) growth to rebound by 15.5 percent in fiscal year 2000 from minus 46.1 percent in 1999. ``On fiscal year 2000 PE (price-earnings) of just eight times, the counter does offer good value as its PE multiple is below that of the market and yet its EPS growth is above the market,' he said. Legend was the largest manufacturer of personal computers (PCs) in China with 17 percent market share. PCs accounted for 40 percent of gross profit and would be the main driver of earnings. Harjani expected the Legend brand PC division to grow by 36 percent in terms of revenue in fiscal year 2000 and market share to increase to approximaately 19 percent in fiscal year 2001. ``Legend is still in the high growth phase and we continue to receommend the stock as a buy as a growth story,' he said.