Target Price: SGD0.96
Strong 2H Performance Seen
HIP’s 2QFY13 results were in line with our estimates as PATAMI swung from negative a year ago to SGD10.9m on the back of revenue of SGD285.0m (+13.2% y-o-y). As its existing clients are ramping up their new programs, Management is upbeat on its 2H performance. ReiterateBUY, with an unchanged SGD0.96 TP, based on a blended 13.5x FY13/FY14 P/E, -1 SD on the stock’s 3-year historical forward P/E.
• Results in line. Boosted by increasing orders from the group’s existing customers, HiP managed to generate SGD17.8m in net profits in 1HFY13 compared with losses last year. This accounted for 31.7% of our full year estimates. The group’s 1H gross margins expanded by 4 ppts to 10.6% due to enhanced capacity utilisation as well as a highermargin product mix.
• Strong 2H guidance. Management is now guiding for a better 2H performance (compared to 1H) in view of the new programs ramp-up by its existing customers. As we highlighted in our previous reports, we believe HIP will play an important role in the production chain of upcoming mid-end smartphones such as Apple’s new lower-priced iPhone. Management also said the group is now able to achieve decent yields from these projects despite the steep learning curve.
• Poised for growth. Gartner data shows that mobile phone sales will continue to grow 4% annually to 1.9bn units by 2014 while the media tablet market will expand by 68% to 201.8m units this year and jump 36.7% to 276.2m units in 2014. It is worth noting that the strong growth is expected to come from the mid- to low-end market targeted by HIP’s customers.
• May resume share buyback. In view of HIP’s strong operating cash flow and net cash pile of SGD85.2m, we see a high possibility of the group buying back its own shares, similar to what it did a few days after it released its 1QFY13 results. In the last buyback, it bought a total of 7.5m shares amounting to SGD6.1m, with the highest price being SGD0.845/share. This will provide downside support to its share price.
Publish date: 05/08/13