The next Foxconn? While the announcement seems neutral on the surface, our investigative work and channel checks with Apple's supply chain reveal more. As part of Apple's ongoing efforts in diversifying its suppliers, we believe that  Apple has chosen Hi-P to be in a key position along its supply chain and has awarded the contract manufacturer with massive orders. That is the underlying reason we
believe  that  Hi-P's  management,  which  is  known  to  be  conservative  has undertaken this major investment.

Expect  to  double  capacity  by  2014. The production is expected to commence from  2H13  onwards,  with  the  full  production  to  be  achieved  in  2H14.  With production  space  increasing  by  50%,  we  believe  that  the  actual  capacity  will  be doubled  by  the  end  of  2014.  Furthermore,  the  new  plant  is  located  in  the  same strategic area as its Shanghai plant, but with minimal wages that are 10% lower.

Non  dilutive  funding. Given  Hi-P's existing net cash position of S$286.9m, the additional  borrowings  will  shift  Hi-P  to  a  still  conservative  gearing  ratio  of  0.32x with no  need  to dilute  shareholding. With strong  operating  cash  flow  forecasted, we believe that the group is in a good position to maintain its dividend payout of 30-40% of earnings.

Source: OSK