STI : 3,181.50
(Downgrade from BUY)
Price Target : 12-month S$ 0.65 (Prev S$ 0.97)
• Customer demand falling short on weaker than expected reception to 5C iPhones and rising stockpiles
• Expect 3Q to be on track but momentum likely to fizzle out, thus weakening the outlook for 4Q and even FY14
• Downgrade to Hold, TP cut to S$0.65
Recovery losing steam. Our recent channel checks suggest that Hi-P’s recovery may have hit a speed bump as less than spectacular reception to Apple’s 5C iPhones has clipped off potential upside for Hi-P. While the company has the capability to support 5S models, we believe production volume may not be that high as Hi-P is relatively new in metal processes. At the same time, Blackberry is deteriorating at a much faster pace than expected, having reported dismal revenues, c.US$1bn inventory write-off and is looking to lay off 4500 workers.
4Q13 momentum to weaken, cut FY13/14F earnings by 17%/27%. We believe 3Q earnings are on track to meet our estimates of 5% growth q-o-q, lifted by ramp up of new products. However, the staggering stockpiles at Blackberry and possibly Apple could drag down 4Q’s production volume. Moreover, Blackberry’s ongoing restructuring is bound to create uncertainty, leading to lower volumes in the near term. Hence, we now expect 4Q earnings to be 20% lower qo- q. We are cutting FY13/14F earnings by 17%/27% to account for the expected slowdown in volumes.
Downgrade to Hold on rising uncertainty, TP lowered to S$0.65. We believe the prospects of a weaker outlook could lead to cuts in consensus earnings, which are higher than ours. Taking into account our earnings downgrade and the weaker outlook, our TP is cut to S$0.65, based on 13.5x FY14 PE. Downgrade to Hold.
Publish date: 02/10/13