■ Weaker outlook guidance; expects lower profit for FY18F
■ Trimmed earnings by 5% each for FY18F and FY19F
■ Maintain HOLD, TP reduced to S$1.80
Lower outlook guidance. The recent trade war between the US and China has created uncertainty for manufacturing companies, especially those with manufacturing plants in China. Hi-P, with six out of 13 manufacturing plants in China, is not spared.
The management is now guiding for similar revenue but lower profit for FY18 as compared to FY17, vs higher revenue and profit in FY18 as compared to FY17 provided during the FY17 results. Decent 1Q18 results despite high forex loss of S$13m. 1Q18 earnings gained 20% y-o-y to S$10.1m, on the back of a 15% rise in revenue to S$281.1m. A decent set of results despite reporting a S$13m net forex loss, vs S$5.2m loss in 1Q17.
Where we differ:
We were the first broker to initiate coverage on Hi-P. We like Hi-P for its ability to ramp-up production to ride on the cycle, strong cash-generating capabilities and exposure to the Internet of Things (IoT) segment. However, we are now adopting a neutral stance on lower earnings visibility.
Stronger-than-expected production ramp-up and demand would help to boost sales while better operational efficiency would help to improve margins.
Lower earnings by 5%, TP reduced to S$1.80. On the back of the weaker outlook guidance, we have tweaked our FY18F andFY19F earnings lower by 5% each. Our new TP of S$1.80 (previously S$1.88) is still based on a 20% discount to peers' PE of 16x on FY18F earnings. Maintain HOLD.
Key Risks to Our View:
Volatile industry with shorter product life cycle. This presents risks on margins and inventories.
Forex exposure. Bulk of revenue in USD but overheads are mainly in RMB and the reporting currency is SGD. (Read Report)
Source : DBS Group Research