FULLY VALUED S$0.61 STI : 2,773.36
Price Target : 12-month S$ 0.43
Hi-P clarified over SGX that news reports have grossly exaggerated the strike stemming from the company's relocation of production facilities from Jinqiao to Nanhui, both within Pudong in Shanghai and only 30-40 mins apart by car.
Management corrected that the strike involved 200 out of the 4000 workers at the Jinqiao site, and not a 1000 as reported by the press. Hi-P also stressed that no staff has been laid off at all. Instead, the company has offered relocation packages (already endorsed by the authorities and Union) to the affected staff, which includes 2 months of salary as incentive to help staff cope and more pick up points have been added to facilitate the transfer. Unfortunately, a minority group of workers remained dissatisfied.
As of now, Hi-P is collaborating with officers from the authorities and the workers' union to work out an amicable solution. Hi-P expects the transfer to be completed by end 1Q12. During this period, management expects consolidation expenses (for next two quarters) but do not foresee operational disruptions. We, however, believe teething problems at the new site could result in slower than expected ramp up resulting in duplication of expenses due to the relocation.
Hence, we believe earnings risk is still on the downside. No change to our Fully Valued call and S$0.43 TP.
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