Compiled by Andrea Soh
HI-P INTERNATIONAL | BUY
DEC 21 CLOSE: $1.84
TARGET PRICE: $2.11
Maybank Kim Eng, Dec 20
We see Hi-P entering a phase of record revenues and improved earnings quality. FY18E-19E earnings per share compound annual growth rate (CAGR) of 19 per cent is driven by its key wireless customer, as well as the ramp-up of business with Internet of Things (IoT) customers and Procter & Gamble.
Returns on equity profile should also improve now that Hi-P has selectively moved way from unprofitable assembly projects to focus on stable ones from blue-chip customers, such as Apple, Keurig and Colgate. Our TP is based on FY17E price-to-book ratio of 3.4 times.
We forecast revenue CAGR of 15 per cent in FY17E-19E. Of this, about 4 percentage points of growth is driven by momentum of allocation wins from its key wireless customer. In the IoT segment, which is expected to deliver about 8 to 9 percentage points of revenue growth, Hi-P is ramping up components for Customer A's smart speakers - US$570 billion (S$766 billion) market cap e-commerce giant - and smart-locks assembly for Customer O, dominant Chinese bike-sharing platform.
In the consumer electronics segment (about 35 per cent of revenue), FY18E growth is driven by P&G's outsourcing trends and bright prospects from Keurig.
We estimate that about 80 per cent of revenue is now contributed by blue-chip customers, each leaders in their fields with stable market shares. This is a transformation from a few years back when wireless assembly was a key contributor, at one point accounting for more than 50 per cent of revenues.
While dividend per share has spiked in FY17E, this is funded by strong free cashflow generation, and Hi-P has not forgone investments. Risks include timely customer orders and payment, global recession and stiff competition.
DBS Equity Research, Dec 21
Malaysian Palm Oil Board's Nov 17 statistics revealed that palm oil output declined 3.3 per cent month-on-month, but was 23 per cent higher year-on-year. We expect output to see a further month-on-month slowdown in December, though 2017 will be higher with 11M17 production up 14 per cent year-on-year.
Nov 17 palm oil exports were lacklustre, 1.2 per cent lower year-on-year. This was primarily dragged by India. We think this was due to increase in import duties last month, which may restrict demand to the bare minimum in the near-term.
While an impending La Nina supports healthy fruit yields, there is risk of disruption to harvesting activities if excessive rain or flooding occurs. Barring supply disruptions, prices will continue to be capped by lukewarm export demand.
Our preference continues to be for companies with strong internal CPO yield outlook: Bumitama Agri (TP: 94 cents), First Resources (TP: $2.18)
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