Hi-P International upgraded by Maybank KE, but trade war tempers outlook

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Maybank KimEng upgraded contract manufacturer Hi-P International to Hold from Sell, saying the negatives are priced in after the stock’s 22 percent drop since late April.

But it was concerned about earnings risk amid a cloudy outlook.

“The escalation of the U.S.-China trade war has reduced our conviction that Hi-P can achieve guidance of flat FY19E earnings, for
which we expect the second half to account for 70-80 percent of the full year,” Maybank KimEng said in a note Monday.

“As such, we await a lower entry point and better clarity on earnings before considering a more positive stance on the shares,” it added.

The fourth quarter earnings outlook faces uncertainty as it hinges on the popularity of a wireless customer’s smartphones, to be launched later this year, the note said.

It also pointed to a potential scenario of a sharp earnings drop if China demand for its customer’s phones drops due to a potential boycott related to the U.S.-China trade war.

Other risks included a deterioration in global consumer sentiment as Hi-P’s products are mainly discretionary consumer electronics as well as intensifying pricing and cost pressures, the note said.

Maybank KimEng kept its target price on the stock at S$1.22.

The stock was down 0.75 percent at S$1.33 at 9:40 A.M. SGT Thursday. That was after touching levels as high as S$1.72 in April.

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