Hi-P's top management at a briefing at the Fullerton Hotel on Wednesday.
L-R: COO Gary Ho, executive chairman Yao Hsiao Tung, and CFO Samuel Yuen.
Photos by Allison Chen
CIMB HAS UPGRADED Hi-P International from ‘Underperform’ to ‘Outperform’ after the original design manufacturer of electronics components posted a 1Q2013 profit after tax that is up 4.5 times year-on-year.
On Tuesday after the market closed, Hi-P announced a 354.0% jump in 1Q2013 net profit to S$6.9 million on better product mix and an improvement in productivity.
Revenue was down 3.9% at S$267.6 million mainly as assembly projects undertaken during the quarter had cost of component materials that was proportionately lower.
Group gross profit margin was higher, and improved by 4.2 percentage points to 11.3%.
”We have better results not because of higher prices paid by our customers but because of better productivity,” said executive chairman Yao Hsiao Tung during its investor briefing at The Fullerton Hotel yesterday (Wed).
On Mon, OSK-DMG had also upgraded Hi-P from ‘Sell’ to ‘Buy’ in anticipation of better-than-expected financial results.
OSK-DMG analyst Edison Chen wrote: "The successful launch and strong take-up of RIM's BlackBerry Q10 should herald a turnaround at RIM, and this will in turn benefit Hi-P as a tier-one component supplier for RIM."
CIMB raised its target price from 64 cents to 86 cents while OSK-DMG, from 76 cents to 84 cents.
The Hi-P management expects FY2013 revenue and profit to be higher than FY2012.
For more info, refer to its media release, financial statements and corporate PowerPoint on its 1Q2013 results here.
"We are in a much better shape after reorganizing into 3 segments: original equipment manufacturing solutions for PC, original design manufacturing solutions for R&D & electronics manufacturing services, and mechanics. Our execution ability is now very strong, and we have ability to bring in new business. Customers feel that our services and responsiveness have improved significantly," said executive chairman Yao Hsiao Tung.Below is a summary of questions raised at the investor briefing and answers provided by Mr Yao, COO Gary Ho and CFO Samuel Yuen.
Q: Pacific Crest is forecasting production cutback by one of your major customers. How will that affect you?
Gary: We have a strong pipeline of projects and are not dependent on any single product model. We will monitor customer forecasts and related media reports very closely, and adjust our production planning accordingly.
Q: P&G recently announced a change in its payment policy to suppliers. In the past, they were known to be a very good paymaster. Now they want to be like an electronics manufacturer, with about 60 to 90 days of credit terms. How will that affect your capital and cash flow?
Mr Yao: Because Hi-P has grown rapidly over the years, P&G's revenue contribution is no longer as significant as before in portion to our group revenue. The change in credit does affect us, but it is not significant.
Samuel: We always try to have back-to-back payment terms between our customer and supplier. When our customer increases its credit days, we adjust our payment terms to suppliers accordingly.
Q: There is a financing cost to you associated with the longer credit terms. How much scope is there to mitigate this by change in pricing of your products?
Gary: In our business of integrated components assembly and supply, the customer appoints some of our sub-component suppliers. Each stage of our cash cycle is planned back-to-back. If a cash cycle gap results in a financing cost for us, we will renegotiate price terms with the customer on a specific product basis.
Q: What is your plan to diversify customer and product base to add to your core product range in wireless devices and tablets?
Mr Yao: There is a trend of commercial applications provided by robotic devices such as iRobot's products that are used in hospitals. We are looking at going into this.
Gary: We are exploring the manufacture of robotic household appliances. The field of robotic devices is new to us and we are engaging sales representatives to provide feedback on demand in robotics from medical and military fields.
Hi-P's recent stock price of 78 cents translates into an upside of 10% or more based on analysts' target prices. Bloomberg data
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