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Hi-P falls 4.66% as Maybank downgrades it to 'sell'

Singapore

CONTRACT manufacturer Hi-P International's shares tumbled on Tuesday amid volatility in Singapore's tech sector, with brokerage firm Maybank Kim Eng downgrading the stock from "hold" to "sell", citing its vulnerability to margin pressures and a downturn in consumer sentiment.

In its morning note, Maybank also cut its target price for Hi-P by 21 per cent to S$0.68 from S$0.84.

The stock began to fall just before lunchtime and continued sliding in afternoon trade. Share prices hit a roughly 5.18 per cent loss during the last hour of trade, before closing 4.66 per cent lower at S$0.92. Over 10 million shares changed hands.

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Maybank analyst Lai Gene Lih said volatility in Singapore's tech sector could persist, given the US-China trade war and macro uncertainties. He said that Maybank is lowering target prices (derived using the net asset value approach) across its Singapore tech coverage to factor in cuts to earnings forecasts and higher costs of equity.

However, Hi-P is the most vulnerable, in comparison to other stocks with stronger resilience such as Valuetronics and Venture Corp, said Mr Lai.

First, Hi-P's revenue mix makes it vulnerable to a material decline in global consumer sentiment. Mr Lai pointed to how Apple, Hi-P's largest customer with 40-50 per cent contribution to revenue, had guided for lower revenue last week. Maybank estimates that 80 per cent of Hi-P's revenue comes from consumer discretionary electronic products and that at least 30-40 per cent of them have short life-cycles of one to three years.

Second, pricing pressure could persist as volumes remain weak. Mr Lai said: "Economies of scale could also drop as it diversifies its product mix amid weaker volumes."

He also noted that Hi-P will be incurring one-off costs for a relocation of its resources to its Thailand and Nantong facilities.

Barring a strong rebound in volumes that could alleviate pricing pressure, Hi-P's stock is likely to face another year of headwinds, said the analyst.

Last year, Hi-P reported third-quarter earnings that were below expectations, blaming "a decline in market demand due to economic uncertainty, and a slower ramp-up for certain new products in the third quarter".