SINGAPORE (Oct 3): DBS says Hi-P is in a sweet spot now as more than half of its earnings come from the smartphone and IoT segments which are expected to continue to do well in the next one to two years.
Hi-P’s strong earnings momentum since 2H16, on the back of operational efficiency, new customers and new product launches, further reinforces the research house’s conviction.
In a Tuesday report, analyst Ling Lee Keng says capacity utilisation has improved from less than 40% in 1Q17 to about 60% to 70% now.
With the continued ramp-up in production, Ling expects utilisation rate to peak at about 70% by 4Q17.
Stronger-than-expected production ramp-up and demand would help to boost sales while better operational efficiency would help to improve margins.
“We are the only broker covering Hi-P,” says the analyst, “We believe the market under-appreciates the potential of the capacity ramp-up and Hi-P’s strong cash-generating capabilities.”
Hi-P’s strong 1H17 results, which is traditionally a much weaker period compared to 2H, should also help allay any market scepticism.
DBS has therefore raised its FY17F and FY18F earnings by 3% each, after factoring in further ramp-up in production. It has pegged a PE valuation of 13.2x on FY18F earnings for Hi-P, as peers have re-rated after the strong results from Apple.
“We maintain a 10% discount to peer average, given its smaller scale. Our target price works out to $1.67, up from $1.45 previously,” says Ling.
As at 10.42am, shares in Hi-P are up 2 cents at $1.43.
