Towards Financial Freedom
Hi-P - On Track For a Comeback
Hi-P's 1QFY13 results came in above our expectation, with PATMI of SGD6.9m (+350% y-o-y) on the back of SGD267.6m in revenue (-3.9% yo-y). In view of its better risk control and firmer outlook, we raise our earnings estimates by 19.9% and 20.1% for FY13 and FY14 respectively. Reiterate BUY with a higher TP of SGD0.96, based on blended 13.5x FY13/FY14 P/E (-1 S.D. three-yr historical forward P/E).
- Decent profits at 50% utilisation. Due to the Chinese New Year holiday and seasonal demand weakness, Hi-P's plant was running at just 50% utilisation. Nevertheless, the Group achieved SGD11.5m core profits after taking away a one-off fire accident impairment. We attribute the surge in gross margin to 11.2% (+4.2 ppts y-o-y) to the Group's expertise in handling BlackBerry products as well as its recent efforts in revamping its organisational structure.
- SBU structure enhances margins and provides risk management. One key reason why Hi-P failed to perform last year was due to the rigid functional organisational structure it had previously. While the Business Development department brought in the contracts based on customer's bullish guidance, production plants increased capacity and functioned like cost centres, creating misalignment of interests. With its new special business unit (SBU) structure now in place, each business unit is responsible for its own profit and loss, capacity planning and customer/ product life cycle risk management. Outlook firms up. Though the revival of BlackBerry remains uncertain with mixed signals out there in the market, Hi-P's order outlook is firm. In line with channel checks, Management sees no signs of weakness in BlackBerry's build up plan. Thanks to its good track record, the Group will not only benefit from the slew new projects coming from Apple, Amazon and BlackBerry, but is also poised to increase its market share from these upcoming projects, mitigating any downside risks of an unexpected single product failure (eg Blackberry Z10). Having learnt from previous mistakes, the Group now incorporates pre-emptive measures and had put in place better risk management. Management still expects utilisation rate to gradually ramp up to 70% in 3QFY13, implying a big earnings upside.
Source: OSK
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