SINGAPORE (May 14): Integrated contract manufacturer Hi-P International has bought back shares four times this month, as its shares slid on dimmer earnings prospects. On May 8, the company bought 66,800 shares for $92,405, or an average price of $1.38. On May 7, it acquired 300,000 shares for a total consideration of $436,044, representing an average price of $1.45 a share. Earlier, on May 4, it bought 400,000 shares for $587,406, or an average price of $1.47 each. A day before that, Hi-P purchased 761,200 shares for $1.1 million, or an average price of $1.49.

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Hi-P’s shares have declined 12.9% since the release of its results on May 2. For 1QFY2018 ended March 31, the company reported a 20% y-o-y rise in earnings to $10.1 million. Meanwhile, revenue rose 15.1% y-o-y to $281.1 million on the back of higher sales volume. However, its gross profit margin fell 0.3 percentage points y-o-y to 13.4%. Other expenses increased $7.7 million y-o-y to $11.3 million, owing to a net foreign exchange loss of $13 million. This arose from the weakening of the US dollar against the Singapore dollar and renminbi. Hi-P incurred a $5.2 million forex loss a year ago.

Founded in 1980 as a tooling specialist, Hi-P has grown into a contract manufacturer for telecommunications, consumer, medical and industrial devices. It owns 13 manufacturing plants — six in China and the rest in Singapore, Thailand and Poland. Its customers include Apple and Amazon.com. Hi-P’s shares tripled last year as the company turned around from a loss-making position. It also benefited from the launches of three new iPhones. However, in its latest results, management had guided for similar revenue but lower profit this year, compared with last year.

DBS Group Research recently turned less bullish on the counter. In a May 3 report, analyst Ling Lee Keng notes that its latest results are “decent”, but that trade tensions have clouded earnings prospects. “The recent trade war between the US and China has created uncertainty for manufacturing companies, especially those with manufacturing plants in China. Hi-P, with six out of 13 manufacturing plants in China, is not spared,” Ling writes. She has a “hold” call on Hi-P, with a price target of $1.80, down from $1.88 previously.

Maybank Kim Eng Research is even less optimistic. In a May 4 report, analyst Lai Gene Lih downgraded her call on Hi-P to a “hold”, with a price target of $1.45. Owing to the threat of a trade war, a few of Hi-P’s customers have reduced their volume forecasts. This intensifies price competition, according to Lai. “At the key wireless customer, the 9% q-o-q drop in the average selling price of its smartphones, as well as its record inventory levels, may be signalling a demand slowdown — which may negatively affect Hi-P. A catalyst for us to potentially turn positive on Hi-P would be a strong recovery in sentiment and volume forecasts by customers. In our view, such an event could tilt the demand-supply dynamics back in Hi-P’s favour,” he adds.

In its 1QFY2018 results, Hi-P has guided for similar revenue but lower profit for the next quarter. However, it expects higher profit for 1HFY2018 compared with a year ago. In commentary accompanying the results, Hi-P cites IDC data that shows worldwide smartphone shipments fell 0.5% y-o-y in 2017. This would mark the first such decline since the advent of smartphones. In response, the company “has identified the Internet of Things segment as another key avenue for growth”.

Shares in Hi-P closed at $1.43 on May 8, giving it a market capitalisation of $1.15 billion.

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