S$0.585-HIPS.SI
? Hi-P has revised down the company’s previous guidance provided on 1 Aug ’11 (where management had guided for 3Q ’11 profit to be between S$11.2mln to S$33.2mln) and now expect to report lower profit compared to 2Q ’11’s S$11.23mln. 3Q ’10’s profit was S$33.2mln.
? The profit warning is the second this year since the first provided on 1 July ’11.
? Management blamed the lower than expected performance to higher than expected labor & raw material costs, inferior product mix, higher contributions from low margined assembly work and factory consolidation.
? Due to the weaker than expected 3Q ’11 performance, management is also revising down their full year 2011 profit guidance to being lower than last year’s S$67.3mln from their previous expectations of being stronger.
? Having achieved S$29mln profit in 1H 2011, management’s guidance implies that 2H 2011 profit would be less than S$38mln compared to 2H 2010’s record profit of S$69mln.
? Given Hi-P’s uncertain and volatile bottom-line performance and guidance, we use the company’s historical price to book trend as a guide.
? Hi-P’s current 0.9x price to book is below its historical average of 1.4x, but still above its all time low of 0.4x reached in late 2008/early 2009. We note that the company’s closely compared to peer Venture has also been de-rated to about 1x price to book currently, also below its average of about 1.6x.
? Hi-P’s share price had in the past been boosted significantly by the company’s share buy back program and we note that despite its depressed state having about halved from its highs reached earlier this year, the company has not bought back shares having done its last buy back on 25 Feb ’11 when it bought 168,000 shares at S$1.18 each.
? We had downgraded Hi-P to a Sell when the company issued its first profit warning in July ’11 and would not attempt to bottom-fish as yet.
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