Hi-P International - RHB Invest 2015-11-09: Surging Back To Life

HI-P INTERNATIONAL LIMITED H17.SI

Hi-P International (HIP SP) - Surging Back To Life

Hi-P made a strong turnaround with its positive 3Q15 results.
Maintain TRADING BUY with a SGD0.61 TP (from SGD0.59, 20% upside), based on 0.7x FY15F P/BV.
It beat consensus estimates, with revenue and NPAT surging 60% YoY to SGD394m and 125.8%YoY to SGD24.3m, a strong reversal from 1H15’s SGD22m loss.
An interim dividend of SGD0.3cents was also declared.
With a positive outlook ahead, we lift our FY15F recurring NPAT by 89%.

Hi-P International (Hi-P) reported a strong 3Q15, blowing past average consensus estimates with revenue and net profit after tax (NPAT) surging 60% YoY to SGD394m and 125.8% to SGD24.3m, a strong reverse from a 22m loss in 1H15 (- SGD8m 2Q15). Gross profit margin expanded from 9.4% to 13.6% due to a shift in product mix. In addition, its Jinhai and Nantong factories, previously loss making, have made a turnaround in 3Q15. Average utilisation rates have also increased to 50% in 3Q (40% 2Q).

Management is still in talks with the concerned parties to find a resolution relating to the arbitration claim. Currently, the USD126m claim is parked under both account receivables and inventory under the balance sheet. With Yota Devices being taken over by REX Global Entertainment (164 HK, NR), we expect a positive settlement favoring Hi-P. However, we note that there is still a risk of Hi-P needing to account for an impairment loss depending on the outcome of the claim.

Leshi Internet Information & Technology Corp (LeTV) has enjoyed a robust reception of its latest smartphone launch. It sold about 550,000 units on its launch date and has pre-orders of about 4m currently. Hi-P, one of the two main manufacturers, would likely stand to benefit from this and contribute positively to their 4Q15.

With a positive operational outlook ahead, we lift our FY15F recurring NPAT by 89% to SGD21.4m while maintaining TRADING BUY on this counter with a higher SGD0.61 TP, based on a 0.8x FY15F P/BV. However, we note the uncertainty of the arbitration claim that may potentially affect its FY15 results.

Jarick Seet RHB Research | http://www.rhbinvest.com.sg/ 2015-11-09

RHB Research SGX Stock Analyst Report TRADING BUY MAINTAIN TRADING BUY 0.61 Up 0.56