Brokers' take

Hi-P International ISELL (downgraded) Aug 5 close: S$1.22 Target price: S$1.15 Maybank Kim Eng Research, Aug 4

Q2 2019 profit after tax and minority interests (PATMI) rose 17 per cent year-on-year, despite a 5 per cent drop in revenue, surpassing our expectation of flat year-on-year. This was largely due to a favourable shift in product mix. Amid an increasingly cautious outlook, Hi-P now guides for FY19 earnings to be "lower" year-on-year from "similar" previously. We cut FY19-21E earnings per share by 4-7 per cent to reflect management's revised guidance.

Despite now guiding to lower earnings year-on-year, guidance for revenue was maintained at flat year-on-year. Management expects the profitability drag to come from pricing pressure and reduced scale of efficiencies. Management are closely evaluating several candidates for mergers and acquisitions. We see a possibility that a deal could be announced in several months, which presents both upside and downside risks.