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CGS-CIMB initiates coverage of Hi-P on ‘hold’ as M&As act as potential growth engine

Lim Hui Jie
Lim Hui Jie • 2 min read
CGS-CIMB initiates coverage of Hi-P on ‘hold’ as M&As act as potential growth engine
CGS-CIMB initiates a “hold” rating for Hi-P International, believing its strong balance sheet will support M&As that drive growth
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CGS-CIMB has initiated a “hold” rating and target price of $1.23 for Hi-P International, believing its strong balance sheet will support mergers and acquisitions (M&A) that could drive growth for the group.

The group provides one-stop solutions to customers in wireless telecommunications, consumer electronics, computing and peripherals, Internet of Things (IoT), medical devices and industrial devices. Hi-P’s capabilities range from product development and design to parts manufacturing to complete product assembly.

Analysts William Tng and Darren Ong noted its net cash balance sheet was at $197 million as at end June 2020, and Hi-P is also exploring inorganic growth opportunities to reduce its customer concentration risk and expand the company.

Last October, Hi-P announced that it was acquiring a 100% stake in SEAMCO, a manufacturer of high volume and high precision engineering plastic components with production facilities in Singapore. The analysts believe that this has brought new capabilities and a new customer for Hi-P.

Management guided that one major customer (a wireless and computing device company) accounted for slightly less than 50% of FY19 revenue, and the analysts said a higher order allocation from its major customer is a key earnings catalyst.

As at 1.08pm, shares of Hi-P traded at $1.18, with a price to book ratio of 1.5 and a dividend yield of 2.49%.

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