Hi-P International

DMG & PARTNERS RESEARCH on 6 Nov 2012

Hi-P reported a weak set of Q3 with $3.0 million PATMI on the back of $271.7 million revenue. The disappointing results are largely attributable to a couple of delayed projects which we believe to involve with Apple, Research-in-Motion (RIM) and Amazon. Management sounded positive over the briefing and shared that outlook has improved as most of the delayed projects have commenced since early Q4. Going forward, we see a close correlation between Apple and Hi-P's share price performance with Hi-P's growing exposure to Apple's products. Therefore, we are taking a cautious stance in view of Apple's weakening share price amid intensifing competition. We lower our FY2012 and FY2013 estimates by 29.7 per cent and 4.5 per cent respectively. Maintain "neutral" with a lower TP of $0.74 pegging blended FY2012/2013 earnings to 13x forward P/E.

During the results briefing, management shared that there were three to four projects that were delayed, resulting in the disappointing performance. We believe that the projects involve with Apple's iPhone 5, RIM's Blackberry 10 as well as Amazon's Paperwhite. Similar to our channel checks, management explained that the delay was not due to Hi-P's capabilities but rather the disruption of the supply chain. Nonetheless, most of the projects have resumed in Q4 with the last major one still pending.

We observed that there was a close correlation between Apple's share price performance and Hi-P's for the past one year with the growing exposure. Despite the delay of the new metal casing business, we estimate that Apple's revenue contribution to Hi-P had surpassed 30 per cent in Q3 FY2012. And we expect this percentage to increase further to 50 per cent with the programme resuming and the new Nantong plant starting to carry out the final assembly work next year. In view of Apple's recent weak share price movement with intensifying product competition, we are taking a cautious stance towards Hi-P's short term performance.
NEUTRAL