RHB Securities 2015-08-11: Hi-P International - 2Q15; Finally A Ray Of Light. Upgrade to TRADING BUY.


Finally A Ray Of Light 

  • Hi-P managed to narrow its loss in 2Q15 to SGD8m, in line with our estimates. 
  • We think the worst may be over and move to TRADING BUY (from Sell), with higher SGD0.56 TP (0.8x FY15F P/BV). 
  • We understand that most of the start-up costs have already been reflected in its 1H15 earnings and should not be a drag, going forward. 
  • Coupled with management’s guidance of a strong turnaround in 2H15 and the ramping up of production, we expect a brighter time ahead. 

 Mass production and ramp up started. 

  • Ramp up and mass production has started in the majority of their factories like Jin Hai, Nanhui and Nantong, primary due to higher order allocation and when mass production is activated. Nantong plant, which houses most of its metal casing activities, has also turned profitable and will contribute more to the bottomline from 3Q15 onwards. 

 More projects from both existing and new customers. 

  • Hi-P also managed to get an existing major customer to co-invest in a few thousand CNC machines. 
  • The company anticipates to have 4,000 computer numerical control (CNC) machines by the end of 2015. 
  • Hence, we expect Hi-P be involved with more projects and products with this major customer. 
  • The ramping up will also commence on 3Q onwards and the current visible pipeline is quite robust, with existing customer LeTV also having recently launched its smartphones. 

 Utilization rate to surge. 

  • To date, they have over 3,000 machines with an average utilisation rate of about 40% (2Q). 
  • With the targeted increase in pipeline given by its customers, Hi-P expects the utilisation rate to increase to about 50% in 3Qand 60% in 4Q. 

 Move to TRADING BUY, SGD0.56 TP, on 0.8x FY15F P/BV. 

  • We think the worst may potentially be over as Hi-P has managed to fill the void left by Motorola, Blackberry and Xiaomi, evidenced by 2Q15 revenue increasing 48% YoY. 
  • We think the worst is behind Hi-P, along with management guiding for a strong turnaround for the rest of 2015 due to ramping up in 3Q15 and the robust pipeline ahead. 
  • However, we do note the short visibility of its business, and the high reliance on market demand for its customers products. 
  • Amid the positive signals, we move our call to TRADING BUY (from Sell), with TP of SGD0.56 (vs SGD0.43) based on 0.8x FY15F P/BV.

Jarick Seet | http://www.rhbgroub.com/ RHB Securities 2015-08-07
TRADING BUY Upgrade HOLD 0.56 Up 0.43