Hi-P International - CGS-CIMB Research 2020-10-02: Aiming For M&A Driven Growth

HI-P INTERNATIONAL LIMITED (SGX:H17)

Hi-P International - Aiming For M&A Driven Growth

We had a discussion with Hi-P International last week regarding updates on its business.
We understand that orders from key customers remain healthy and Hi-P International remains interested in growth via M&As.
Reiterate HOLD, with an unchanged target price of S$1.23.

We had a call with Hi-P International (SGX:H17) last week for an update. Based on our understanding, orders from most of Hi-P’s key customers are healthy. We believe Hi-P is seeing domestic market demand in China, with orders for smart wearables and Internet of Things (IoT) devices from a Chinese customer.
The other trend we noted is that some customers are enjoying stronger demand for their products due to the shift to work-from-home arrangements. We believe Hi-P International is also experiencing stronger orders from a communications customer, which has benefitted from America’s trade war with China.

We believe Hi-P International remains committed to its M&A growth strategy, supported by a net cash balance of S$197m as at end-Jun 2020 and 80.2m treasury shares.
To recap, Hi-P International acquired South East Asia Moulding Company Pte Ltd, a high-volume/high-precision engineering plastic components manufacturer, last year. We believe Hi-P International remains interested in acquisitions that will help the company penetrate the automotive/healthcare industries.
Also, given the US-China trade war, potential M&As could be a way to establish a manufacturing presence in Vietnam, Malaysia or the Philippines. As COVID-19 has restricted the ability of management to travel for due diligence, we believe any M&As will have to wait until travel between countries normalise.

Hi-P International has ceased quarterly reporting, in line with the revised listing requirements, and, hence, did not provide any update for its 1Q20 performance. In the event that Hi-P International does not provide a 3Q20 update, investors will have to wait till Feb 2021 for its FY20 full-year results announcement to be apprised of the company’s financial performance.

We reiterate our HOLD call on Hi-P International with an unchanged target price of S$1.23. Our target price is based on a 1.52x FY20F P/BV multiple, derived from the Gordon Growth Model (COE: 8.7%; ROE: 12.7%).
We use a Gordon Growth Model-derived P/BV to value the company given the cyclicality of the business.
See Hi-P International Share Price; Hi-P International Target Price; Hi-P International Analyst Reports; Hi-P International Dividend History; Hi-P International Announcements; Hi-P International Latest News.
A downside risk is a deterioration in customer demand.
An upside risk is higher orders from its major customer.

William TNG CFA CGS-CIMB Research | Darren ONG CGS-CIMB Research | https://www.cgs-cimb.com 2020-10-02

SGX Stock Analyst Report HOLD MAINTAIN HOLD 1.230 SAME 1.230