Maybank KimEng said on Monday that shares of Hi-P International were overvalued after gaining 47 percent since posting its earnings in late February.
It downgraded the stock to Sell from Hold, keeping a S$1.22 target price.
“Except for the resignation of the deputy CEO, there were no material announcements to suggest a shift in fundamentals,” the brokerage said in research note. “Amid guidance for flat year-on-year earnings, the stock appears overvalued.”
It estimated the shares were trading at 14 times 2019 price-to-earnings, compared with global peers at 10.5 times and its own three-year average of 12.3 times.
Maybank KimEng said it saw two possible reasons for the stock’s recent surge.
“First, the market may be potentially expecting a share transaction involving Hi-P shares from majority shareholder, chairman and CEO, Mr. Yao,” the note said. “Regardless of whether a transaction materializes, this does not affect our fundamental valuation of the stock.”
Secondly, the market could be pricing in a stronger-than-expected outlook, despite Hi-P’s guidance for first quarter and 2019 earnings to be lower-to-flat, the note said.
The share price is implying a “lofty” 20-23 percent 2018-2021 earnings per share.
compound annual growth rate (CAGR)
, the note said.
“In view of still challenging operating environment, we believe such earnings expectations may be difficult to achieve,” Maybank KimEng said.
Hi-P also faces succession planning issues, the note said, pointing to the resignation of Deputy CEO Mark Su after only five months in the job, marking the second high profile departure in the past two years, it said.
The stock was down 7.36 percent at S$1.51 at 11:59 A.M. SGT.