Hi-P International downgraded to Sell by Maybank KimEng

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Maybank KimEng downgraded Hi-P International to Sell from Hold after cutting earnings on pricing pressure and relocation costs.

“Pricing pressure could persist as volumes remain weak. Economies of scale could also drop as it diversifies its product mix amid weaker
volumes,” the brokerage said in a note this week. “Lastly, HIP will be incurring one-off costs for a relocation of its resources to its Thailand and Nantong facilities.”

It lowered its 2018-20 earnings per share forecasts by 2-4 percent after Hi-P’s biggest customer, which accounts for 40-50 percent of its revenue, cut its revenue guidance.

“This customer has cited unexpected weakness in Greater China and believes the U.S.-China trade war is partly to blame. We believe HIP’s revenue mix makes it vulnerable to a material decline in global consumer sentiment,” Maybank KimEng said.

It estimated 80 percent of Hi-P’s revenue is from consumer discretionary electronic products, with at least 30-40 percent having short, one-to-three-year life cycles.

The brokerage also increased its cost of equity (COE) assumption to 10.3 percent from 9 percent as the stock price has become volatile.

It lowered its target price to S$0.68 from S$0.84, based on 0.8 times 2019 price-to-book-value, down from 1 times previously.

Shares of Hi-P were up 1.63 percent at S$0.935 at 11:59 A.M. SGT.

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