• Hi-P International has received a privatisation offer at S$2.00 per share in cash from its founding shareholder. If successful, Hi-P International will be delisted from SGX.
• Given limited trading liquidity, we recommend investors accept the offer which is reasonable, in our view.
• To reflect Hi-P International’s improved business prospects, our target price is raised to S$2.00. Maintain HOLD.

Receives Privatisation Offer

• Hi-P International (SGX:H17) has received a privatisation offer from its major shareholder, Mr Yao Hsiao Tung, who currently owns 83.41% of the company’s shares. The offer price is S$2.00 per share in cash and will not be revised unless a competitive bid surfaces.
• The offer, once successful, will lead to the delisting of Hi-P International.
• On a historical P/BV basis, Hi-P International’s offer is attractive at 2.60x P/BV versus Sunningdale Tech’s 0.78x (offer currently in progress) and Memtech’s 1.09x P/BV (offer completed). In the past 5 years, Hi-P International’s +1 s.d. above mean P/BV was 2.10x and + 1 s.d. above mean P/E was 14.5x. Against this benchmark, the offer’s P/BV of 2.6x and P/E of 20.0x is at a premium.

Major Customer Upped Its Shipment Targets Recently

• According to a 15 Dec 2020 report by Nikkei Asia Review, Apple (AAPL US) reportedly wants to increase iPhone production by roughly 30% y-o-y in 1H21F due to strong demand for the company's first 5G phones. Nikkei Asia Review reported that Apple could produce up to 96m iPhones for 1H21. We believe Hi-P International could be a beneficiary of this development as our channel checks indicate that Apple is a major customer of Hi-P International.
• We also understand that Hi-P International is diligently seeking to further penetrate its customer D’s supply chain (Hi-P International acquired this customer via an acquisition in Oct 2019).

Take the Offer

• Given the improved business prospects highlighted above, we raise our Hi-P International's revenue forecasts for FY20-22F leading to between 0.4% and 12.8% increases in our earnings forecasts. Our Gordon Growth derived P/BV multiple rises to 2.25x (previously 1.52x).
• Rolling over to FY21F, our target price for Hi-P International is raised to S$2.00.
• Given the limited trading liquidity in Hi-P International’s shares, we recommend investor take the S$2.00 offer. Our rating stays at HOLD.
• A downside risk is deterioration in customer demand.
• An upside risk is higher orders from its major customer.

Source: CGS-CIMB Research - 18 Dec 2020