SINGAPORE (Nov 8): DBS Vickers Securities is reiterating its “buy” call on Hi-P International with a higher target price of $2.30 from $1.67 previously after applying a 10% premium to peers’ P/E of 14 times on FY18F earnings projections.
This comes on the back of strong earnings momentum as demonstrated in the electronics manufacturer latest set of 3Q financial results, which saw group earnings surge 25% to $38.4 million due to an improved product mix and greater operational efficiency.
See: Hi-P posts 25% surge in 3Q earnings to $38.4 mil
In a Wednesday report, analyst Ling Lee Keng says DBS is expecting earnings momentum to remain strong in the 4Q to come, on the back of new products in the Wireless and IoT segments.
As the only broker covering Hi-P, the research house believes the market currently under-appreciates the group’s potential of a capacity ramp-up; strong cash-generating capabilities; and its strong earnings momentum.
Ling further highlights that the group has guided for higher revenue and profit for 4Q17 on q-o-q and y-o-y basis.
Revenue and profit for 2H17 and FY17 are also expected to be stronger as compared to 1H17 and FY16 respectively.
The analyst has therefore raised FY17F and FY8F earnings by 16% and 18% respectively after factoring in a further ramp-up in production, and is now expecting earnings per share (EPS) CAGR of 34% for FY16-19F.
“Hi-P is in a sweet spot now as more than half of its earnings are derived from the Wireless (smartphone) and Computer Peripherals (IoT segment, e.g. smart home) segments, which are expected to continue to do well in the next one to two years,” says Ling.
With the continued ramp-up in production, Ling expects the group’s utilisation rate to remain high at about 70% in 4Q17, and has identified the expansion of Hi-P’s customer base to other industries as a potential share price driver.
“We would not rule out the possibility of the group expanding to other industries like automotive and medical devices, in order to diversify and reduce customer concentration risk, and to smooth out the seasonality effect, especially for smartphones,” adds the analyst.
As at 10:41am, shares in Hi-P are trading 0.26% higher at $1.94, 2.61 times FY18F book value.
