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Hot stock: Hi-P shares up 7.6% after news of major shareholder mulling deal

SHARES in mainboard-listed Hi-P International have advanced by 7.6 per cent during Tuesday's afternoon session, with the contract manufacturer's stock advancing S$0.08 to S$1.14 as at 2.49pm. It was also among the Singapore bourse's 10 most actively traded stocks by volume, with some 15 million shares traded.

The gain comes on the back of news that a controlling shareholder of Hi-P is considering a deal, which could lead to a play for the rest of the stock. The company had announced this early Tuesday in response to a trading query from the Singapore Exchange.

Hi-P drew a trading query from the market regulator on Monday as its stock shot up on heavy trading. The counter had surged 30.9 per cent to close at S$1.06 on Monday after 19.5 million shares changed hands - its highest volume in more than five years, according to KGI Securities' Tuesday morning note.

In a Nov 12 report, Maybank Kim Eng analyst Lai Gene Lih maintained his "hold" call on Hi-P and a target price of S$0.84.

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He noted the challenging sales environment for Hi-P going forward: "The Nikkei Asian Review recently reported that Hi-P’s smartphone customer has cancelled its production boost for the cheapest model among this year’s launches, suggesting market demand is underwhelming. Meanwhile, Hi-P’s smart-speaker customer is facing market-share losses due to aggressive tactics from competitors."

In addition, he wrote that management is "concerned" about a weak demand environment in estimated FY2019 due to the direct and indirect effects of the trade war.

In his report, Mr Lai said that currently, they do not see "re-rating catalysts" but an escalation of the trade war or worsening demand outlook may pose a key downside risk to their estimates. 

Similarly, DBS Group Research analyst Ling Lee Keng observed uncertainty in FY2019 forecasts in a report on Nov 8, as customers adjust themselves for the "potential full impact of the trade war".

Hi-P is also expanding its manufacturing footprint outside China, including in Thailand and Poland, and relocation expenses could affect margins, she wrote. 

Ms Ling downgraded her "buy" call on Hi-P to "hold" and lowered the target price to S$0.80.