SINGAPORE (May 6): Analysts seem to have a conflicting outlook on Hi-P International, following the group’s latest results announcement.

The group on May 2 posted a 5.7% y-o-y increase in its 1Q19 earnings to $10.7 million, compared to $10.1 million in 1Q18, due to a 70% reduction in foreign exchange losses.

This came on the back of a 2% increase in revenue to $286.8 million from $281.1 million last year, while gross profit margin declined to 12.6% in 1Q19 from 13.4% in 1Q18. This was mainly due to price pressure and a change in product mix with more lower margin high component content assembly products.

See: Hi-P Int posts 5.7% increase in 1Q earnings to $10.7 mil

With the improvement in 1Q19 results, DBS Group Research has maintained its “hold” call on Hi-P, but with an increased target price of $1.41 from $1.12 previously.

In a Friday report, analyst Ling Lee Keng says, “Hi-P has again proven thus far that it is able to maintain its top line amid the challenging environment due to the trade war uncertainties. Even though the group faces pricing pressure from its customers, it is able to partially mitigate this by enhancing operational efficiencies to minimise the drop in margins.”

However, the group’s outlook remains cloudy and margin pressure is expected to persist.

The analyst believes that potential mergers and acquisitions could help support share prices, but this could be put on hold in the meantime as the group is channelling its resources towards building its business amid the challenging market.

DBS also admits that it is less bearish compared to consensus, as the group has proven thus far to be able to maintain top line amid challenges in the market and working towards enhancing operational efficiencies to improve margins.

Maybank Kim Eng continues to rate Hi-P “sell” with a target price of $1.22, despite 1Q19 earnings coming in ahead of expectation.

Apart from the foreign exchange losses and derivative hedging, Hi-P’s 1Q19 EBIT fell 18% y-o-y, due to erosion in gross margins from pricing pressure and a less favourable product mix, as well as increased selling, general and administrative expenses.

The group has noted that its outlook is increasingly competitive. And pricing pressure remains from its key wireless customer.

However, Hi-P does expect to offset this be growth from other customers and operating efficiencies. As such, management expects FY19 revenue to be flat y-o-y.

Meanwhile, chairman, CEO and majority owner Yao Hsiao Tung, had previously expressed interest to privatise the company, but he has since clarified that he has changed his mind.

In a Monday report, analyst Lai Gene Lih says, “While he may consider reducing part of his stake to boost free float, his present focus is to steer Hi-P through the volatile environment.”

As at 11.40am, shares in Hi-P are trading at $1.34, or 1.8 FY19 book with a dividend yield of 2.1%.