SINGAPORE (July 12): Hi-P International, the electronics manufacturer in the telecommunications, lifestyle, computing and automotive industries, has put the “ghosts of Yota” behind it – possibly for good – in Maybank Kim Eng’s view.
The chapter on assembling Russia’s Yotaphone2, which led to FY15 losses from $74.4 million in inventory write-offs, closed in Jan 2017 with an out-of-court settlement of US$17 million ($23.5 million), recall analysts Neel Sinha and Lai Gene Lih in an unrated report on Wednesday.
“Management indicated residual inventory had been sold and there was zero additional provisioning risk from this project. This was a key learning lesson for Hi-P leading to the implementation of ERM systems and adoption of a risk-weighted total exposure approach to evaluate clients,” say the analysts.
While the stock is thinly-followed, Sinha and Lai estimates that Hi-P trades at 11.8 times forward P/E versus its Singapore peer basket of about 14.5 times.
A recent company visit by Maybank to Hi-P has also revealed that industry leaders such as Apple, Seagate, Colgate and Keurig are among the group’s roster of customers in the sectors of wireless communications, computing & peripherals and consumer electronics.
“Management is optimistic in delivering profit growth with new product launches and better operating efficiency,” comment Sinha and Lai.
Moving forward, the analysts highlights that the group’s medium-term growth strategy to expand to electronics manufacturing services (EMS) for the automotive and healthcare segments.
“Given the long certification lead times involved in these sectors, management plans to accelerate market entry through mergers and acquisitions (M&A) with ticket sizes up of to about $100 million each over the next two years. M&A will largely be funded by internally generated cash and treasury shares (80.7m), although the company is open to taking on some debt too,” they elaborate.
Although FY17 sales are expected to be flattish y-o-y, the group’s management has guided for net profit growth from the shift in product mixed towards higher component manufacturing over assembly work.
“Overall capacity utilisation stands at 30-40% currently but is forecast to rise to c. 70% levels in 3Q17 ahead of the year-end holiday season,” say the analysts.
As at 11.49am, shares of Hi-P are trading 0.5% lower at 93 cents.
