S$0.88-HIPS.SI
Hi-P’s second largest customer (Apple) whom we estimate contributes about 15-20% of sales surged 7.5% in after hours trading to hit an all time record high after its 3Q ended June 2011 sales and profit beat market expectations by a wide margin (net profit surged 125% yoy to US$7.79 a share ahead of expectations of US$5.87 a share while sales surged 82% to US$28.6bln, ahead of expectations of US$25bln) on the back of better than expected demand for their iPad, iPhones and Macbooks.
Apple has been instrumental in turning around the fortunes of Hi-P since it started mass production for this new customer around 2Q 2010 when its bottom-line turned around from 1Q 2010’s first ever loss of S$14mln.
While the continued strength of Apple would continue to benefit Hi-P, we understand that competitive pressures are also increasing and unfortunately, Hi-P’s largest customer Research In Motion (RIM) whom we estimate contributes about half of its revenues has also been providing down-side surprises in terms of product delays and market share loss (as a result of profit disappointments, RIM’s share price has crashed 62% from its 2011 high and is even 26% below its Mar’2009 lows when global markets bottomed after the Lehman crisis; giving it a trailing PE of only 4x).
This together with rising cost pressures resulted in Hi-P’s recent downward profit guidance for 2Q 2011.
Since Hi-P’s profit warning at the end of June 2011, its share price has fallen 13%, ahead of its sector peers Venture and Hon Hai’s 8-9%. Before that it has basically been tracking the share price performance of its peers.
We maintain our Sell recommendation.
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