FULLY VALUED S$0.675
(Downgrade from HOLD)
Price Target: 12-month S$0.47 (Prev S$0.65)
• Cuts earnings guidance due to lower orders from customers
• 3Q is affected by inventory provisions, we believe margins were lower than expected
• FY13F/14F EPC cut by 37%/25%
• Downgrade to Fully Valued, 32% downside to revised TP of S$0.47
No growth for 3Q13, 2H13 < 1H13. Despite higher sales, Hi-P guides down 3Q13 because of a S$4.4m inventory provision. Instead of y-o-y growth, the company now expects 3Q13 profits to be flat from 3Q12. Additionally, management expects lower earnings in 2H13 compared to 1H13, even though sales is forecasted to grow h-o-h.
Dragged by bleak outlook for smartphone customers. We had earlier warned of downside risks for Hi-P, in view of weak demand and rising stockpiles of Blackberry and Apple smartphones. However, the decline turned out to be more severe than we had expected. Apart from lower sales, we believe margin recovery was missing too. Looking at its customers, Blackberry continues to struggle in developed and emerging markets; Apple has cut 4Q orders for iPhone 5c and Moto X’s lacklustre reception highlighted its difficulty to regain market share. With more than 50% of earnings tied to smart mobile devices, we believe Hi- P’s operating environment will remain challenging in the near term.
Downgrade to Fully Valued, TP cut to S$0.50. We cut FY13/14F earnings by 37%/25% to account for downgrades of our sales and margin assumptions. Consequent to these earnings reductions, our TP is lowered to S$0.47, based on 13x FY14 PE. Downgrade to Fully Valued.
Publish date: 29/10/13