Hi-P International: Cut In iPhone 5c Output To Hurt Profit
(NEUTRAL SGD0.69, TP: SGD0.67)
Hi-P released negative profit guidance last Friday, citing a drop in orders from one of its existing customers, which we believe may be Apple. Production orders for iPhone 5c have been cut following its disappointing debut. We slash our FY13 and FY14 estimates by 47% and 40% respectively. Maintain NEUTRAL, with our new SGD0.67 TP based on 0.95x FY13 P/BV (0.5 SD below five-year historical average).
Negative profit guidance. In its recent 2QFY13 results, Hi-P’s management guided for better 3QFY13 and 2HFY13 numbers a y-o-y and h-o-h basis respectively. However, it now expects the company’s 3QFY13 net profit to be similar to 3QFY12’s SGD3.0m, owing to an inventory provision of around SGD4.4m. It is also projecting its 2HFY13 net profit would be lower than that of 1HFY13.
Orders from Apple decline. Hi-P explained that the SGD4.4m inventory provision was due to a drop in orders from one of its existing customers, which we believe may be Apple. According to our channel checks in Taiwan, Apple has cut its year-end orders for iPhone 5c with contract manufacturers such as Hon Hai Precision Industry Co Ltd (2317, NR) and Pegatron Corp (4938, NR) in view of weaker-than-expected demand. As we had previously pointed out, since Hi-P is largely involved in the production of the iPhone 5c rather than 5s, the group’s performance will be significantly affected.
Slashing FY13 estimates. As such, we slash our FY13 and FY14 earnings estimates by 47% and 40% respectively. We believe the company needs to beef up efforts to diversify its customer base in order to mitigate the impact from volatility in the fast-changing consumer electronics industry.
Nevertheless, given the company’s low free float and strong net cash hoard of SGD84.4m, the stock’s valuation should still be supported by its NTA value of SGD0.71/share. Our new SGD0.67 TP is based on 0.95x FY13 P/BV, 0.5 SD below the stock’s five-year historical average.
Publish date: 29/10/13