Broker's take: Rise in customer orders, earnings momentum get Hi-P a 'buy' rating

A RAMP up in production for bluechip customers - among them a "key wireless customer" - and strong earnings momentum have earned contract manufacturer Hi-P International a "buy" rating from broker Maybank Kim Eng on initial coverage, with a 12-month target price of S$2.11 with a 19 per cent upside.

Founded in 1980, Hi-P is an EMS (electronic manufacturing service) and ODM (original design manufacturer) provider, and traces its roots to plastic injection moulding. It counts companies such as Proctor & Gamble, Keurig and Colgate among its customers, with smartphone maker Apple contributing to around 40 to 50 per cent of sales.

The company's share price has seen a 52-week high of S$2.06 and low of S$0.47, and the firm counts founder Yao Hsiao Tung as its majority shareholder with an 83 per cent stake.

Maybank forecasts revenue CAGR (compound annual growth rate) of 15 per cent in financial year 2017-2019, of which four percentage points of growth will be driven by momentum of allocation wins from its key wireless customer, in reference to Apple.

The Internet of Things (IoT) segment is also expected to be another growth driver for Hi-P, delivering an expected eight to nine percentage points of revenue growth.

ODM and R&D (research and development) capabilities have enabled the company to make repeat customers out of some clients in the consumer electronics segment, Maybank said.

Hi-P is ramping up production for "Customer A's" smart speakers and smart locks assembly for bike-sharing platform "Customer O", in possible reference to e-commerce giant Amazon and Beijing-based Ofo, respectively.

Around 80 per cent of revenue is now contributed by bluechip customers, a transformation from several years ago when assembly for wireless customers was a key contributor.

Maybank forecasts downside risk which could negatively affect end-demand of products Hi-P manufacture for, market share losses, payment defaults from customers and sudden declines in the US dollar, against the yuan and Singapore dollar, in which it reports.