SINGAPORE (May 4): Maybank Kim Eng Research has downgraded Hi-P International to “hold” and slashed its target price by more than 40% to $1.45 after the electronics manufacturer negatively revised its guidance on multiple emerging headwinds.
Previously, the brokerage had a “buy” recommendation on Hi-P with a target price of $2.43.
The lower valuation comes after Maybank cut its earnings per share (EPS) forecast by 35-45% for FY18-20.
“Hi-P has negatively revised guidance, and now expects to end FY18 with similar revenue and lower profit compared to FY17 amid customer cautiousness,” says analyst Lai Gene Lih in a Friday report. “This is a negative revision from Feb 2018, when it guided for revenue and profit growth in FY18 compared to FY17.”
Interestingly, Hi-P’s lower guidance came on the back of a positive 1Q18, with earnings climbing 20.0% to $10.1 million for the quarter ended March.
The contract manufacturer of smart phones, tablet computers and other consumer electronics saw 1Q18 revenue rise 15.1% to $281.1 million, driven by higher sales volume.
See: Hi-P posts 20% rise in 1Q earnings to $10.1 mil on higher revenue
“A few of Hi-P’s customers have turned cautious amid the threat of a trade war. As customers reduce their volume forecasts, price competition has intensified as well,” says Lai.
In addition, the analyst points out that Hi-P has hedged 70-80% of its foreign exchange exposure. As a result, Lai says Hi-P might miss out on margin improvement in the event of a USD recovery – unless these hedges are unwound.
At the same time, Lai says Hi-P’s key wireless customer has seen the average selling price (ASP) of its smartphones tumble 9% quarter-on-quarter. Coupled with record inventory levels, this could signal a demand slowdown, which might negatively affect Hi-P, Lai adds.
As at 12.08pm, shares of Hi-P are trading 9 cents lower, or down 5.7%, at $1.48. This implies an estimated price-to-earnings ratio of 12.9 times and a dividend yield of 2.4% for FY18.
