SINGAPORE (Oct 10): Maybank Kim Eng Research is bullish on Hi-P International, after the Mainboard-listed contract manufacturer’s recent acquisition opened doors for “immediate access to a blue chip customer”.

Hi-P on Tuesday announced the US$31 million ($42.5 million) acquisition of South East Asia Moulding Company (SEAMCO), a Singapore-based plastics manufacturer.

According to the group, the proposed acquisition is strategic as it would allow the group to tap on the strength, resources and business network of SEAMCO. 

“The proposed acquisition provides an immediate access to a blue chip customer that present us with enormous growth prospects in consumer electronics and automotive market segments,” said Yao Hsiao Tung, executive chairman and CEO of Hi-P.

See: Hi-P to acquire engineering plastic components manufacturer SEAMCO for up to $42.5 mil

In a report on Thursday, Maybank analyst Lai Gene Lih sheds light on SEAMCO’s customer that Hi-P now has access to – a “Customer D” that is “well known for its bladeless fans, cordless vacuums and unique hair dryer/styling products”.

This is seen as a reference to Dyson, the tech giant that had recently made headlines for shifting its headquarters to Singapore.

Dyson, which has employed 1,100 people at its facilities that produce motors, is also expected to complete its factory in Singapore in 2020 and launch its electric vehicle (EV) here in 2021.

According to Lai, this underscores Singapore’s importance to the Customer D’s long term strategy. And he is optimistic that the proposed SEAMCO acquisition will pay off handsomely for Hi-P.

The brokerage is upgrading its recommendation on Hi-P to “hold”, from “sell” previously, and raising its target price by 2% to $1.21.

“SEAMCO’s capabilities and production footprint appear to complement needs for Customer D’s Singapore-based EV project,” says Lai. “SEAMCO won Customer D’s best supplier award in 2015, its inaugural year, suggesting a strong working relationship.”

According to analysts, SEAMCO’s capabilities and production footprint appear to complement the tech ccompany’s product plans over a longer horizon. 

The SEAMCO acquisition, which was fully funded in cash, was closed at 4x FY18 P/E, which would have been FY18 earnings per share (EPS) accretive by 9.7%. 

But Lai is quick to caution that the positive returns might take some time to manifest, as SEAMCO’s current focus is on high-end components and modules for consumer electronics. Nevertheless, the acquisition is what he terms “a step towards entering the automotive market”. 

“We assume SEAMCO will be consolidated in FY20, and contribute around $8 million of earnings per annum for FY20-21E. This is lower than SEAMCO’s $10 million earnings in FY18, to reflect our conservatism due to insufficient information on growth dynamics,” says Lai. 

The analyst adds that Hi-P may provide more colour during their 3Q19 results briefing on Oct 31.

Shares in Hi-P International closed flat at $1.19 on Thursday. This translates into a price-to-earnings (P/E) ratio of 10.69 times and a dividend yield of 2.5%, according to Maybank valuations.