Aug-3 Oct-3 Dec-3 Feb-4 Apr-4 Jun-4 Vol m Results Review, 5 August 204 Buy (Maintained) Industrial - Misc. Manufacturer Target Price: SGD0.87 Market Cap: USD453m Price: SGD0.69 Clear Sign Of Confidence Macro Risks Growth Value 0.80 0.75 0.70 Price Close Relative to Straits Times Index (RHS) 0 03 95 As with expectations, Hi-P narrowed its 2Q4 losses to SGD3.0m (- 75.3% q-o-q, 2Q3:SGD2.6m profit) on SGD22.3m revenue (+8.6% q- o-q, -25.5% y-o-y). While we adjust our revenue estimates for lower assembly services and higher group margins, we expect a stellar SGD27.6m profit in 2H4 on strong orders signals from the resumption of Nantong plant s construction. Maintain BUY and SGD0.87 TP on.2x peer average FY4 P/BV. 0.65 0.60 0.55 88 80 73 2Q losses narrow. In line with our expectations, 2Q revenue increased by 8.6% q-o-q to SGD22.3m on stronger customer demand. With its high operating leverage model, gross margin also recovered up to 6.6% (+4.7 ppts q-o-q) on the back of improved utilisation rate. As a result, 2Q net losses narrowed to SGD3.0m (-75.3% q-o-q). 0.50 3 2 2 Source: Bloomberg Avg Turnover (SGD/USD) 65 0.3m/0.0m Cons. Upside (%) 23.2 Upside (%) 26.2 52-wk Price low/high (SGD) 0.53-0.78 Free float (%) 0 Share outstanding (m) 88 Shareholders (%) Yao Hsiao Tung 60.2 Molex Incorporate 2.8 Hi-P International 8.4 Share Performance (%) YTD m 3m 6m 2m Absolute 7.9 20.0 2. 3.4 (4.8) Relative 2.3 7.8 8.3 8.6 (7.6) Shariah compliant Edison Chen +65 6232 3892 edison.chen@sg.oskgroup.com Terence Wong CFA +65 6232 3896 terence.wong@sg.oskgroup.com Construction of Nantong plant resumed; a clear sign of confidence. The resumption of Nantong plant s construction should provide a strong signal as to the strength of Xiaomi s orders. Construction has resumed since late June, and the company has invested SGD49.m as of 30 June. This is in line with Xiaomi s CEO Lei Jun s comments that Hi-P is expanding its capacity, loading up new computer numeric control (CNC) machines to support the production of Mi4 s premium stainless steel frame. Full-year capex is guided to reach SGD5m. We expect orders from both Xiaomi and Apple (AAPL US, NR) to fill the expanded capacity, with utilisation rate gradually hitting 50% by year-end. Revenue overestimated but profit forecast is in line. Hi-P guided for higher profit but lower revenue in FY4 compared with FY3. We overestimated the provision for the low-margin assembly services that the group made as part of a turnkey solution to attract customers. On the other hand, we underestimated the gross margins on the sales of the stainless steel frame to Xiaomi. We now expect Hi-P to generate SGD.2bn and SGD.6bn revenue for FY4 and FY5 respectively, and its gross margin to increase to 8.6% in FY4 and 0.5% in FY5 respectively. We lower FY4F net profit by.6% to SGD2.3m, taking into account HFY4 loss of SGD5.3m, which translates into a profit of SGD27.6m in 2H4. We also tweak our FY5F earnings up 2.3% to SGD4.9m. Maintain BUY with TP unchanged at SGD0.87, based on.2x peer average FY4 P/BV. Forecasts and Valuations Dec- Dec-2 Dec-3 Dec-4F Dec-5F Total turnover (SGDm),204,67,262,96,580 Reported net profit (SGDm) 45.0 7.9 6.4 2.3 4.9 Recurring net profit (SGDm) 45.0 7.9 6.4 2.3 4.9 Recurring net profit growth (%) (33.) (60.) (64.4) 9.5 242.2 Recurring EPS (SGD) 0.05 0.02 0.0 0.0 0.05 DPS (SGD) 0.02 0.0 0.02 0.02 0.04 Recurring P/E (x) 2.7 3.8 89. 46.5 3.6 P/B (x) 0.96 0.98 0.95 0.96 0.94 P/CF (x) 5.6 na 6.89 4.2 4.52 Dividend Yield (%) 3.5.7 2.9 2.9 5.8 EV/EBITDA (x) 3.02 6.0 5.37 4.70 3.42 Return on average equity (%) 7.7 3.. 2. 7.0 Net debt to equity (%) net cash net cash net cash net cash net cash Our vs consensus EPS (adjusted) (%) (7.3) 26.9 See important disclosures at the end of this report Powered by EFA TM Platform
5 August 204 Financial Exhibits Profit & Loss (SGDm) Dec- Dec-2 Dec-3 Dec-4F Dec-5F Total turnover,204,67,262,96,580 Cost of sales (,073) (,069) (,65) (,093) (,43) Gross profit 3 98 98 03 67 Gen & admin expenses (72) (79) (8) (76) (98) Selling expenses (7) (7) (0) (9) (2) Other operating costs 4 7 3 - - Operating profit 56 9 8 57 Operating EBITDA 5 89 98 44 Depreciation of fixed assets (59) (70) (88) (93) (87) Operating EBIT 56 9 8 57 Net income from investments 0 0 (0) - - Interest income 5 7 3 2 Interest expense () (4) (2) (3) (3) Pre-tax profit 59 23 6 56 Taxation (4) (5) (5) (4) (4) Minority interests 0 (0) (0) - - Profit after tax & minorities 45 8 6 2 42 Reported net profit 45 8 6 2 42 Recurring net profit 45 8 6 2 42 Cash flow (SGDm) Dec- Dec-2 Dec-3 Dec-4F Dec-5F Operating profit 56 9 8 57 Depreciation & amortisation 59 70 88 93 87 Change in working capital () () (38) 3 (5) Other operating cash flow 7 7 29 2 2 Operating cash flow 22 (5) 90 44 4 Interest received 4 7 3 2 Interest paid () (4) (2) (3) (3) Dividends received 0-0 - - Tax paid (23) (2) (8) (4) (4) Cash flow from operations 02 (4) 83 38 26 Capex (66) (5) (66) (5) (60) Other new investments 4 - - - - Other investing cash flow 5 8 (2) 2 Cash flow from investing activities (56) (43) (68) (4) (58) Dividends paid (30) (20) (0) (6) (33) Shares repurchased () () (6) - - Proceeds from issue of shares - - - Increase in debt 40 95 (39) - - Other financing cash flow (2) (5) (3) (3) (3) Cash flow from financing activities (2) 7 (58) (9) (36) Cash at beginning of period 25 264 66 32 37 Total cash generated 44 (86) (43) 5 32 Forex effects 5 (2) 9 - - Implied cash at end of period 264 66 32 37 68 See important disclosures at the end of this report 2
5 August 204 Financial Exhibits Balance Sheet (SGDm) Dec- Dec-2 Dec-3 Dec-4F Dec-5F Total cash and equivalents 340 78 39 43 75 Inventories 25 46 63 53 70 Accounts receivable 293 328 323 287 348 Other current assets 7 20 4 4 4 Total current assets 775 67 639 598 706 Total investments 2 2 8 8 8 Tangible fixed assets 284 365 359 38 354 Total other assets 4 3 2 2 2 Total non-current assets 30 380 388 40 383 Total assets,076,05,026,008,089 Short-term debt 7 42 02 02 02 Accounts payable 3 278 239 225 297 Other current liabilities 47 48 83 83 83 Total current liabilities 475 468 424 40 482 Total long-term debt 3 2 2 2 2 Other liabilities 2 Total non-current liabilities 4 3 3 3 3 Total liabilities 479 47 427 43 485 Share capital 20 20 20 20 20 Retained earnings reserve 477 474 469 465 474 Other reserves () (5) 9 9 9 Shareholders' equity 596 579 598 594 603 Minority interests Other equity (0) 0 0 0 0 Total equity 597 580 599 595 604 Total liabilities & equity,076,05,026,008,089 Key Ratios (SGD) Dec- Dec-2 Dec-3 Dec-4F Dec-5F Revenue growth (%) 25.7 (3.) 8.2 (5.2) 32. Operating profit growth (%) (35.6) (65.3) (45.3) 7. 26.4 Net profit growth (%) (33.) (60.) (64.4) 9.5 242.2 EPS growth (%) (32.4) (60.) (64.4) 9.5 242.2 Bv per share growth (%) 5.6 (2.8) 3.3 (0.7).5 Operating margin (%) 4.6.7 0.8.5 3.6 Net profit margin (%) 3.7.5 0.5.0 2.7 Return on average assets (%) 4.7.7 0.6.2 4.0 Return on average equity (%) 7.7 3.. 2. 7.0 Net debt to equity (%) (36.9) (5.7) (5.9) (6.8) (.8) DPS 0.02 0.0 0.02 0.02 0.04 Recurrent cash flow per share 0.2 (0.02) 0.0 0.7 0.5 See important disclosures at the end of this report 3
Jan- Jan-2 Jan-3 Jan-4 Jan-5 Jan- Jan-2 Jan-3 Jan-4 Jan-5 5 August 204 SWOT Analysis Strong R&D and established track record in handset manufacturing Solid management team Reputable client base comprising Apple, Amazon Xiaomi, Colgate, Motorola and P&G. Intense competition among manufacturers Well-positioned in the booming wireless devices market Escalating manufacturing costs P/E (x) vs EPS growth P/BV (x) vs ROAE 00 90 80 70 60 50 40 300% 260% 220% 80% 40% 00% 60% 2% % 0% 8% 7% 6% 5% 30 20 0 0 20% -20% -60% -00% 4% 2% % 0% P/E (x) (lhs) EPS growth (rhs) P/B (x) (lhs) Return on average equity (rhs) Company Profile Hi-P International is an integrated contract manufacturing services provider specialising in precision plastic injection moulding, mould design and fabrication, assembly, ancillary value-added services and precision metal stamping. See important disclosures at the end of this report 4
0.62 0.74 0.58 0.96 na 0.55 0.79.22.5.28 0.80 0.59 0.63 0.84 0.76 0.67 5 August 204 Recommendation Chart Price Close.30 Recommendations & Target Price.20.0.00 0.90 0.80 0.70 0.60 0.50 0.40 Aug-09 Nov-0 Feb-2 May-3 Buy Neutral Sell Trading Buy Take Profit Not Rated Source: OSK-DMG estimates, Bloomberg Date Recommendation Target Price Price 204-08-03 Buy 0.87 0.68 203--04 Neutral 0.67 0.6 203-0-28 Neutral 0.67 0.68 203-09-24 Neutral 0.76 0.74 203-05-6 Buy 0.96 0.82 203-05-06 Buy 0.84 0.77 203-02-22 Sell 0.63 0.70 203-0-7 Sell 0.58 0.70 202-2-9 Sell 0.59 0.78 202--06 Neutral 0.74 0.8 Source : OSK-DMG estimates, Bloomberg See important disclosures at the end of this report 5
RHB Guide to Investment Ratings DMG & Partners Research Guide to Investment Ratings Buy: Share price may exceed 0% over the next 2 months Trading Buy: Share price may exceed 5% over the next 3 months, however longer-term outlook remains uncertain Neutral: Share price may fall within the range of +/- 0% over the next 2 months Take Profit: Target price has been attained. Look to accumulate at lower levels Sell: Share price may fall by more than 0% over the next 2 months Not Rated: Stock is not within regular research coverage DISCLAIMERS This research is issued by DMG & Partners Research Pte Ltd and it is for general distribution only. It does not have any regard to the specific investment objectives, financial situation and particular needs of any specific recipient of this research report. You should independently evaluate particular investments and consult an independent financial adviser before making any investments or entering into any transaction in relation to any securities or investment instruments mentioned in this report. The information contained herein has been obtained from sources we believed to be reliable but we do not make any representation or warranty nor accept any responsibility or liability as to its accuracy, completeness or correctness. Opinions and views expressed in this report are subject to change without notice. This report does not constitute or form part of any offer or solicitation of any offer to buy or sell any securities. DMG & Partners Research Pte Ltd is a wholly-owned subsidiary of DMG & Partners Securities Pte Ltd, a joint venture between OSK Investment Bank Berhad, Malaysia which have since merged into RHB Investment Bank Berhad (the merged entity is referred to as RHBIB which in turn is a whollyowned subsidiary of RHB Capital Berhad) and Deutsche Asia Pacific Holdings Pte Ltd (a subsidiary of Deutsche Bank Group). DMG & Partners Securities Pte Ltd is a Member of the Singapore Exchange Securities Trading Limited. DMG & Partners Securities Pte Ltd and their associates, directors, and/or employees may have positions in, and may effect transactions in the securities covered in the report, and may also perform or seek to perform broking and other corporate finance related services for the corporations whose securities are covered in the report. This report is therefore classified as a non-independent report. As of 3 August 204, DMG & Partners Securities Pte Ltd and its subsidiaries, including DMG & Partners Research Pte Ltd, do not have proprietary positions in the subject companies, except for: a) - As of 3 August 204, none of the analysts who covered the stock in this report has an interest in the subject companies covered in this report, except for: a) - DMG & Partners Research Pte. Ltd. (Reg. No. 200808705N) Kuala Lumpur Hong Kong Singapore Malaysia Research Office RHB Research Institute Sdn Bhd Level, Tower One, RHB Centre Jalan Tun Razak Kuala Lumpur Malaysia Tel : +(60) 3 9280 285 Fax : +(60) 3 9284 8693 RHB OSK Securities Hong Kong Ltd. (formerly known as OSK Securities Hong Kong Ltd.) 2 th Floor World-Wide House 9 Des Voeux Road Central, Hong Kong Tel : +(852) 2525 8 Fax : +(852) 280 0908 DMG & Partners Securities Pte. Ltd. 0 Collyer Quay #09-08 Ocean Financial Centre Singapore 04935 Tel : +(65) 6533 88 Fax : +(65) 6532 62 Jakarta Shanghai Phnom Penh PT RHB OSK Securities Indonesia (formerly known as PT OSK Nusadana Securities Indonesia) Plaza CIMB Niaga 4th Floor Jl. Jend. Sudirman Kav.25 Jakarta Selatan 2920, Indonesia Tel : +(622) 2598 6888 Fax : +(622) 2598 6777 RHB OSK (China) Investment Advisory Co. Ltd. (formerly known as OSK (China) Investment Advisory Co. Ltd.) Suite 4005, CITIC Square 68 Nanjing West Road Shanghai 2004 China Tel : +(862) 6288 96 Fax : +(862) 6288 9633 Bangkok RHB OSK Indochina Securities Limited (formerly known as OSK Indochina Securities Limited) No. -3, Street 27 Sangkat Toeuk Thla, Khan Sen Sok Phnom Penh Cambodia Tel: +(855) 23 969 6 Fax: +(855) 23 969 7 RHB OSK Securities (Thailand) PCL (formerly known as OSK Securities (Thailand) PCL) 0th Floor, Sathorn Square Office Tower 98, North Sathorn Road,Silom Bangrak, Bangkok 0500 Thailand Tel: +(66) 2 862 9999 Fax : +(66) 2 08 0999 6