Brokers' take
Hi-P International | Buy Dec 21 close: S$1.84 Target price: S$2.11 Maybank Kim Eng, Dec 20
We see Hi-P entering a phase of record revenues and improved earnings quality. FY18E-19E EPS CAGR of 19 per cent is driven by its key wireless customer, as well as the ramp-up of business with IOT customers and P&G. Returns on equity profile should also markedly improve now that Hi-P has selectively moved way from unprofitable assembly projects to focus on stable ones from blue-chip customers, such as Apple, Keurig, and Colgate. Our TP is based on FY17E P/B of 3.4 times.
We forecast revenue CAGR of 15 per cent in FY17E-19E. Of this, about 4ppt of growth is driven by momentum of allocation wins from its key wireless customer. In the IOT segment, which is expected to deliver about 8-9ppt of revenue growth, Hi-P is ramping up components for Customer A's smart speakers (US$570 billion market cap e-commerce giant), and smart-locks assembly for Customer O (dominant Chinese bike-sharing platform). In the consumer electronics segment (CE, about 35 per cent of revenue), FY18E growth is driven by P&G's outsourcing trends, and bright prospects from Keurig.
We estimate that about 80 per cent of revenue is now contributed by blue-chip customers, each leaders in their fields with stable market shares. This is a transformation from a few years back when wireless assembly was a key contributor, at one point accounting for more than 50 per cent of revenues.
While DPS has spiked in FY17E, this is funded by strong free cashflow generation, and Hi-P has not forgone investments. Risks include: i) timely customer orders and payment; ii) global recession; and iii) stiff competition.
Plantation companies DBS Equity Research, Dec 21
Malaysian Palm Oil Board's (MPOB) Nov 17 statistics revealed that palm oil output declined 3.3 per cent m-o-m to 1.94 million MT, but was 23 per cent higher y-o-y. We expect output to see a further m-o-m slowdown in Dec, though 2017 will be conclusively higher with 11M17 production up 14 per cent y-o-y.
Nov 17 palm oil exports were lacklustre, 1.2 per cent lower y-o-y at 1.35 million MT (-12 per cent m-o-m). This was primarily dragged by India. We think this was due to the impact of an increase in import duties in November, which may restrict demand to the bare minimum level in the near-term.
While an impending La Nina supports healthy fresh fruit bunch yields, there is risk of disruption to harvesting activities if excessive rain or flooding occurs. Barring supply disruptions, prices will continue to be capped by lukewarm export demand.
Our preference continues to be for companies with strong internal CPO yield outlook: Bumitama Agri (TP: S$0.94), First Resources (TP: S$2.18)
Compiled by Andrea Soh
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