S$0.93-HIPS.SI
As warned by management in early July ’11, 2Q 2011’s net profit fell 9.4% yoy and 39% qoq to $11.23mln due to inferior product mix, intense price pressures, higher labor & raw material costs, higher depreciation charges & tax rate as well as project delays resulting in dis-economies of scale.
Looking ahead, management said that the business environment is expected to remain competitive and similar factors that negatively impacted 2Q 2011 performance such as pricing pressures, higher operating costs from higher labor and expenditures due to consolidation of production facilities will continue to negatively impact 2H 2011 performance.
Due to the increasing use of metals in smart phones, tablet computers and other consumer electronic products, management has targeted to spend $100mln on additional capex in 2H 2011 and expects the new equipment to contribute more significantly next year. The capex plan is expected to take place in phases.
With its net cash position of just under $200mln, it would not have a problem financing the capex plan internally.
Management expects 3Q 2011 profit to be lower than last year’s $33.2mln but higher than 2Q 2011’s $11.2mln and for full year 2011 profit to be higher than last year’s $67.3mln.
If we assume the industry’s usual 40/60 split between 1H and 2H, Hi-P’s full year 2011 profit is likely to come in around $70-80mln, below current consensus estimate of close to $100mln.
Since its profit warning in early July 2011, Hi-P has declined 8+%, similar to Venture and Hon Hai, but underperforming the STI ’s 2+% gain.
Pending an update from management later this morning, we are maintaining our SELL recommendation on Hi-P.
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