SINGAPORE (Aug 2): DBS Vickers Securities is maintaining “hold” on Hi-P International with a lower price target of $1.21 compared to $1.80 previously, after cutting FY18F and FY19F earnings by 23% and 29% respectively to account for lower margins.
The new target price is based on a 30% discount to peers’ average PE of 16 times, versus 20% discount previously, on blended FY18F and FY19F earnings.
DBS’s lower earnings estimates comes on expectations of margin pressure within the supply chain due to recent trade-war tensions between the US and China, which DBS believes Hi-P will not be spared from.
While the research house still expects the group to enjoy healthy demand at least for FY18F, in line with the group’s recent management guidance, it believes earnings will still be hit by lower margins going forward.
“We like Hi-P for its ability to ramp up production to ride on the cycle, strong cash-generating capabilities and exposure to the Internet of Things (IoT) segment. However, we are now adopting a neutral stance on lower earnings visibility,” says analyst Ling Lee Keng in a Thursday report.
“Stronger-than-expected production ramp-up and demand would help to boost sales while better operational efficiency would help to improve margins,” she adds.
Shares in Hi-P closed 12 cents lower at $1.15, or 1.54 times FY18F book value, on Thursday.
