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Introduction:

MFS Technology would become the first SGX-listed printed circuits maker to have flexible printed circuits (FPCs) contribute the lion share to the total Group sales (73.7% to be exact) and pre tax profits (88.6%). Technology investors should be familiar with the printed circuit boards (PCBs). The FPC is the non-rigid counterpart to the rigid board. (see pictures ) The FPC is widely used in many electronic devices that have movable parts and those that have to bend or flex an interconnect. These devices include cellular phones, storage devices and electronic systems in automotive.

The Group also manufactures rigid printed circuit boards in a joint venture with Hunan Computer CO at a manufacturing facility in PRC. MFS Technology is majority owned by the WBL Corp through its subsidiaries.

Currently, all their telecommunication customers, such as Philips and Motorola, account for 51% of their sales. The computers and peripherals customers account for 16% while automotive customers account for 15%.

Their financial year ends on 30 September. Their unaudited FY01 sales have shown a marginal 0.5% decline while pre tax profits declined 23.4%. The Group explains that the decline in margins were due to higher turnkey business and sales were slower during the financial year.

The Group is, however, optimistic of their long term prospects. They have identified telecommunications, medical and automotive sectors as their key growth areas for the future. They believed they have strong competitive advantages over new entrants and current competitors because the technology barriers are high and huge sums of money have to be invested by new players. In addition, they believe that the strong rapport they have with their customers and their diversified base of customers in many different sectors cannot be easily copied by new entrants.

IPO Details:

Public Shares Offered: 2,600,000 shares

Reserved Shares Offered: 7,900,000 shares

Placement Shares Offered: 41,100,000 shares

Total Shares Offered: 51,600,000 shares (12.1% of enlarged capital)

Offer Price: S$0.27/share

Offer Period: 8 Jan - 14 Jan 2002

Commence Trading on SGX: 16 Jan 2001

Manager and Underwriter: OCBC Bank

Placement Agent: DBS Vickers Securities (Singapore) Ltd

Net Proceeds: S$12.3 million

Use of Proceeds:

Expand FPC production capacity in Singapore: S$7.0m
Expand FPC assembly capacity in Singapore: S$0.8m
Working capital : S$4.5m

BUSINESS OVERVIEW

Background Information on FPCs and rigid PCBs (Excerpt from Prospectus)

Interconnect substrates are used to provide the electrical connection between components in electronic systems and as a substrate to support electronic devices. Such interconnect substrates include FPCs, rigid PCBs and ceramic hybrid circuits. FPCs and rigid PCBs are fundamental and generic commodities common to all electronic products.

Unlike a rigid PCB which is normally constructed out of copper clad epoxy glass laminate sheets, a FPC is constructed from a flexible polymide plastic dielectric using an acrylic or epoxy adhesive to bond the dielectric to metal conductors, typically copper, or to other sections of dielectric as required. In general, FPCs are employed when there is a need to bend or flex an interconnect for use in products such as cellular phones and storage devices. Rigid PCBs are typically less expensive and are employed in flat plane applications.

Over the past decade, electronic systems, particularly portable computers and computer peripherals, telecommunications and consumer electronic products, have seen demands for increase in product functionality and significant reductions in size, weight and price. This trend towards miniaturization has increased end user demand for these products. In producing these products, electronic systems would have to rely on more complex and higher density rigid PCBs which can accommodate more circuitry in a smaller space. In this regard, FPCs offer several advantages over the rigid PCBs, particularly for smaller complex electronic systems, by reducing the need for connectors, cables and other packaging components.

In addition, FPCs can conform to contoured ergonomic shapes or small spaces, provide mechanical flexure, vibratory stability, enhanced connectivity and offer superior thermal dissipation characteristics. These capabilities enable FPCs to reduce the overall assembly cost for system manufacturers as compared with traditional interconnection devices.

The advancement of PCB technology such as the development of high density PCBs has broadened its use in the application of electronic products/ components like telecommunications, industrial equipment and instruments, automotive as well as in high precision instruments used in photography, chronometers, healthcare and avionics amongst others. The range of applications for both rigid PCBs and FPCs is diverse, covering disk drives and other storage systems, cellular phones, consumer electronic products, medical instruments, automotive parts, military and aerospace systems.

Group's Business:

MFS Technology and its subsidiaries designs, manufactures and distributes FPCs and PCBs. It also provides turnkey component assembly services for FPCs. In turnkey component assembly, MFS Technology sources for other parts from suppliers and assembles modules which use FPCs. Such services usually contributes a higher turnover but will result in a lower profit margin. They can provide application engineering services for FPCs to their customers.

FPCs and PCBs are the Group's main product lines. Although they can manufacture both products, it is the FPC, which has been the major contributor both in terms of turnover and profit before tax (73.7% and 88.6% respectively)

COMPANY HISTORY

In 1989, United Wearnes Technology (UWT)and Multi Fineline Electronix (MFI) Inc, both from the WBL Group, formed a 60:40 jv in Singapore. The joint venture is the present MFS Singapore (previously, Ifracom Pte Ltd). The jv carried out electrical testing, singulation and packaging stages of the FPC production processes for MFI. MFI and its subsidiaries designs, manufactures, assembles and distributes Flexible Printed Circuits (FPCs).

By 1991, MFS Singapore has become a full fledged manufacturer of FPCs, focusing on the disk drive and consumer electronics industry. In 1994, WBL Corp formed Wearnes Great Wall Circuit Co with Hunan Computer CO to design and manufacture single, double and multi-layer rigid Printed Circuit Boards (PCBs). Hunan Computer is a PRC company listed on the Shenzhen Stock Exchange, which assembles PC, design and manufacture fare meters, card readers and terminals.

In 1995, MFS Singapore has expanded its activities to include assembly services and started to manufacture for the telecommunications sector. It was awarded the ISO9002 quality assurance certification by PSB for the manufacture of plated through hole FPCs.

In 1998, it expanded into Malaysia, when they acquired MFS Malaysia (MFM) from WBL. MFM was a design and marketing office in the beginning. However, from FY98-FY00, MFS invested $7.3 million MFM to set up a manufacturing plant in Malacca. Later in FY01, they invested a further $1.2 million in the facilities.

In the same year in 1998, MFS Singapore acquired the entire issue share capital of Flex Solutions ( formerly known as Wearnes Biotech & Medicals Pte LTD) from Wearnes Technology to manage the design, engineering and marketing of FPCs.

The next year in 1999, MFS Singapore was awarded the QS9000 quality assurance certification by PSB, a more stringent quality assurance standard and one that is demanded by leading automobile makers in the automotive industry like General Motors, Ford and DaimlerChrysler.

In 2000, MFM was awarded the ISO9002 quality assurance certification by Anglo Japanese American Registrars for the manufacture and assembly of single-sided, double-sided, multi-layer plated through hole FPCs and rigid flex. They also acquired the 65% interest in WGC held from their parent company. They invested another $8.8 million in the production facilities.

Between FY98 to FY00, they have invested another $8.2 million in equipment and production facilities in MFS Singapore for optical inspection equipment, laser drilling machines and automatic plating lines to increase their production capacity and capability. From FY01 to the present, they have invested another 6 million in the Singapore production facility.

The Group, currently, employs 800 employees, manufactures in PRC, Singapore and Malaysia and sells to USA, Europe and Asia Pacific.

BUSINESS MODEL

MFS Technology aims to become a "manufacturer of choice" of FPCs and PCBs globally. They will continue to provide a wide range of solutions to their customers to establish themselves as a one stop service provider to their customers in respect of their interconnect requirements.

They have adopted and will practise these business policies and plan to achieve the following goals:

Provide a "one stop" solution package for interconnect requirements
Expand their R&D activities
Establish a diversified customer base
Establish strategic alliances and pursue acquisition opportunities
Establish multi-site manufacturing facilities in Singapore and PRC

IPO VALUATION

MFS Technology IPO prospectus points out their historical FY 2001 pre-dilution earnings per share as 4.0 cents if new service agreements for management were in place. This profit is effectively diluted by the issue of new shares, raising the existing shares outstanding from pre-IPO 374,400,000 shares to post-IPO 426,000,000. Assuming if the post IPO number of shares existed at end of last financial year, earning per share is 3.60 cents before service agreement and 3.52 cents after service agreement.. Thus, the fully-diluted post-IPO price/earnings (PE) ratio, at issue price, 7.5x before service agreement is in place and 7.7x after service agreement in in place. The convention method of calculating PE (using pre-IPO shares), before service agreement, is 6.6x (EPS: 4.1 cents) in the prospectus.

FINANCIAL PERFORMANCE

MFS Technology LTD

FINANCIAL PERFORMANCE

$'000	Audited FY 98	Audited FY 1999	Audited FY 2000	Unaudited FY 2001
Revenue	41,273	52,236	88,728	88,348
Operating profit before amortization and depreciation, interest and tax	11,887	14,408	23,194	19,141
Other Income	1,358	429	749	752
Pre Tax Profit	10,684	11,483	19,555	14,982
Taxes	(535)	(2,551)	(3,714)	(1,496)
Net Earnings	10,149	8,932	15,841	13,486
Net Profit Margin	24.6%	17.1%	17.8%	15.3%

MANAGEMENT / LEADERSHIP

David Wong Cheong Fook

David Wong is the non-Executive Chairman and is currently the Group Managing Director of Wearnes Technology. He was appointed to the Board of Directors of the company on 2 Aug 2001. Before he joined Wearnes Technology, David Wong was a partner of Ernst & Young in Singapore from 1988 to 2000. he was a pilot with the Republic of Singapore Air force from 1978 to 1986. In addition he also held various senior positions in its operations and logisitics divisions. David Wong graduated from the University of Cambridge, UK with a Master of Arts degree. He is also a member of the Institute of Chartered Accountants in Singapore. He was a President's and SAF Scholar and received the Public Administrative Medal (Silver) (Military) and the Public Service Medal in 1997.

Pang Tak Lim

Pang Tak Lim is the company's Managing Director. He was appointed to MFS Technology on 2 Aug 2001 and has been a Director of MFS Singapore since Jan 95. He has 29 years of experience working in the electronics industry, inclusive of the 23 years that were spent in the PCB and related industries. He was the Operations Manager for CTS Corp, a company that manufactured oscillators and hybrid circuits, for a year before joining Wearnes Technology in 1990. He had worked for 2 major PCB plants that belonged to Motorola Electronics and Printed Circuit International from 1978 to 1989. From 1993 to 1996, Mr Pang was the General Manager of MFS Singapore from 1993 to 1996. He became the Managing Director in 1997. He is also a Director in Wearnes Great Wall Circuit (WGC) and MFM. HE holds an honours degree from University of Singapore, majoring in Chemistry.

Reggie M Thein

Reggie is an Independent Director of the Company and a financial adviser and director of several public and private companies. He was appointed on the 2 Aug 2001. He was a Senior Partner with Coopers & Lybrand and the Managing Director of its management consulting services firm since 1972. He is a fellow of the Institute of Chartered Accountants in England and Wales. He is a member of the Institute of Certified Public Accountants of Singapore. He is also a member of the practice of corporate governance in Singapore. He was awarded the Public Service Medal in 1999.

Chris Yong Yoon Kwong

Chris is also an Independent Director of the Company and is currently the Managing Director of Volex (Asia) Pte LTD, a company who supplies electrical and electronic cable assemblies. He was also appointed on the 2 Aug 2001. He held several management positions in United Wearnes Technology and Wearnes Techology and was the Managing Director and Deputy Managing Director of UWT and WT. Chris has a Bachelor of Engineering degree from the University of Tokyo and was awarded a scholarship by the Japanese government.

Alexander Chan Meng Wah

Alexander is another Independent Director of the Company and is currently an Executive Director of MMI Holdings. He was also appointed to the Board on the 2 Aug 2001. Between 1995 to 1999, Alexander was the Managing Director and Chief Executive Officer of Yeo Hiap Seng, which distributes and manufactures food and beverages, property development and investment positions. He worked at Hewlett Packard Singapore and was appointed its Managing Director in 1991. Alexander has a Bachelor of Electrical Engineering (Hons) degree from University of Singapore and a Master of Business Administration degree from University of California, USA.

Sin Boon Ann

Sin Boon Ann is an independent Director of the Company and is, current, a Director of Drew & Napier LLC. He was appointed to the Board on 2 Aug 2001. He has worked for Drew & Napier since 1992 and has been involved in legal matters in corporate finance, banking, joint ventures, investments and acquisitions. He was involved in the setting up of the Drew & Napier LLC's Hanoi Office. Prior to joining Drew & Napier LLC, Mr Sin taught at the Faculty of Law of NUS from 1987 to 1992. He is the MP for Tampines GRC. He received his Bachelor of Arts and Bachelor of Laws (Honours) degrees from the NUS and his Master of Laws from the University of London.

Khoo Lee Meng

Khoo Lee Meng is a non-Executive Director of the Company and is currently the Group General Manager of Wearnes Technology. He was appointed to the Board of Directors on 2 Aug 2001. Before he joined Wearnes Technology, he was the CEO of the Singapore Institute of Standards and Industrial Research, now PSB. He joined SISIR in 1977 as a mechanical engineer and was appointed the Chief Executive in 1992. He holds an honours degree in mechanical engineering and a masters degree in industrial engineering from NUS. He is a registered professional engineer in Singapore and is a fellow of the Institute of Engineers, Singapore.

COMPETITION

Flexible Printed Circuits:

MFS Technology named the following companies as their main competitors in the FPC market:

Fujikura LTD - Japan
Mektec Corporation - Japan
Nitto Denko Corporation - Japan
Sumitomo Electric Industries LTD - Japan
Innovex Inc - USA
Parlex Corporation - USA
Sheldahl Inc - USA

*MFI is a related party to MFS Technology. WBL owns shares in both MFI and MFS Technology. The company is aware of the potential competition from emerging FPC companies in Taiwan and PRC which could become their competitors in the future.

Rigid PCBs:

MFS Technology explained that although there are many large rigid PCB manufacturers in the US, Japan, Taiwan, PRC and Europe, they do not consider them as their competitors. They further explained that because their production facility is located in PRC, they are competing mainly with the other PCB manufacturers in PRC. They are not competing directly with MNC PCB makers operating in PRC because they serve different target customers and they have different operating cost structures. The following companies have been named as their competitors in the PCB market

China Circuit Technology - PRC
Shengyi Electronics LTD - PRC
Shenzhen Shennan Circuit Corp - PRC
Zhuhai Multilayer PCB Co. LTD - PRC

RISK FACTORS

The following risks are fully described in the prospectus. Would-be investors are advised to read the risk factor section in the prospectus before they make their investment decisions.

The Group:

is subjected to rapid technological changes.
is dependent on the electronics industry.
is subjected to intense competition.
is dependent on the availability and pricings of components.
has shareholders who have a controlling interest in MFI, a company that has been named as one of the Group's competitors.
may not be able to protect their name "M-Flex", which could hinder their business development.
has businesses which are subjected to foreign currency risk exposure.
is concern that there may be uncertainties associated with the expansion of their business.
is dependent on their key management/ technical personnel.
is subjected to environmental regulations.
is exposed to sovereign risks in Malaysia.
is exposed to sovereign risks in PRC.
may not be able to utilise tax losses to set off against taxable profits in the future.
may not be able to enjoy certain income tax incentives in PRC and Malaysia in the future.
explains that any future sale of shares may adversely affect their share price.
cautions that new investors will incur immediate dilution and could experience more dilution in the future.
cautions that there has been no prior market for their shares and the initial public offering may not result in an active or liquid market for their shares.

Major Shareholders

Shareholder	Before the Invitation		After the Invitation
Wearnes Technology	129,304,000	34.5%	129,304,000	30.4%
United Wearnes Technology	193,418,000	51.7%	193,418,000	45.4%
United Circuits (Hong Kong) LTD	19,660,000	5.3%	19,660,000	4.6%
Employee Shareholders	18,315,000	4.9%	18,315,000	4.3%
Non Employee Shareholders	5,897,000	1.6%	5,897,000	1.4%
Pang Tak Lim	7,169,000	1.9%	7,169,000	1.7%
Khoo Lee Meng	637,000	0.2%	637,000	0.1%
Public	-	-	51,600,000	12.1%

MAJOR CUSTOMERS

Name/ Percentage of sales (%)	Product/ Country	FY 99	FY 00	FY 01
Philips group of Companies	FPC/ Netherlands	26.6	10.7	14.9
MFI	FPC/ USA	2.2	8.4	12.9
Motorola group of Companies	FPC/ USA	0.5	8.8	11.5
Mackie Designs Manufacturing Inc	FPC/ USA	7.6	10.3	9.6
Hyndai Display Technology Inc	Korea	-	0.7	6.4
NCAB Trading AB	Sweden	5.8	6.5	5.3
Pemstar Inc	FPC/USA	1.0	5.1	3.7
Tianjin Jinya Electronics CO	FPC/PRC	6.0	3.7	3.1
Martinez Manufacturing Inc	FPC/ USA	-	6.8	2.7
Hewlett Packard (S) Pte LTD	FPC/ USA	11.1	6.2	1.4

MFS Technology explained that the fluctuations in the percentage of their total sales to the different customers were due mainly to fluctuations in the level of demand of their customers' products, industry trends and the proliferation of new and/or improved products. For example, sales to Philips decreased from FY98 to FY99 as a result of a reduction in orders due to the end of the product life cycle of a major programme. The development of new programmes for cellular phones in FY2000 subsequently led to an increase in their sales to Philips.