Hi-P's reported a weak set of 3Q with S$3.0m PATMI (-53.9% YoY) on the back of S$271.7m revenue (-12.0% YoY). The disappointing results are largely attributable to a couple of delayed projects which we believe to involve with Apple, Research-in-Motion (RIM) and Amazon. Management sounded positive over the briefing and shared that outlook has improved as most of the delayed projects have commenced since early 4Q. Going forward, we see a close correlation between Apple and Hi-P's share price performance with Hi-P's growing exposure to Apple's products. Therefore, we are taking a cautious stance in view of Apple's weakening share price amid intensifing competition. We lower our FY12 and FY13 estimates by 29.7% and 4.5% respectively. Maintain NEUTRAL with a lower TP of S$0.74 pegging blended FY12/13 earnings to 13x forward P/E (5-yr historical average).

Delayed projects have resumed. During the results briefing, management shared that there were three to four projects that were delayed, resulting in the disappointing performance. We believe that the projects involve with Apple's iPhone 5, RIM's Blackberry 10 as well as Amazon's Paperwhite. Similar to our channel checks, management explained that the delay was not due to Hi-P's capabilities (e.g. yield issues) but rather the disruption of the supply chain. Nonetheless, most of the projects have resumed in 4Q with the last major one still pending.  

Close correlation with Apple. We observed that there was a close correlation between Apple's share price performance and Hi-P's for the past one year with the growing exposure. Despite the delay of the new metal casing business, we estimate that Apple's revenue contribution to Hi-P had surpassed 30% in 3QFY12. And we expect this percentage to increase further to 50% with the programme resuming and the new Nantong plant starting to carry out the final assembly work next year. In view of Apple's recent weak share price movement with intensifying product competition, we are taking a cautious stance towards Hi-P's short term performance.

Source: OSK