Hot stock: Hi-P down 13% on uncertain outlook; DBS lowers target price to S$1.80

HI-P International's stock has fallen by 13 per cent as at 12.18pm on Thursday, despite posting a 20 per cent rise in first quarter earnings to S$10.1 million.

The contract electronics manufacturer announced on Wednesday a 15 per cent rise in revenue to S$281.1 million, which broker DBS Group Research classified as "decent".

The counter was trading at S$1.47 heading into the midday lunch break, down S$0.22.

Despite the rise in earnings, DBS cautioned that the trade war between the US and China has created uncertainty for manufacturing companies, especially those with manufacturing plants in China.

Hi-P, with six out of 13 manufacturing plants in China, is not spared.

"The management is now guiding for similar revenue but lower profit for FY18 as compared to FY17, versus higher revenue and profit in FY18 as compared to FY17 provided during the FY17 results," the broker added.

DBS maintained its "hold" call on Hi-P's stock, but revised its target price to S$1.80 from S$1.88 previously, based on a 20 per cent discount to Hi-P's peers' price to earnings ratio of 16 times on fiscal 2018's earnings.

The more stable consumer electronics segment - where Hi-P derives about 30 to 40 per cent of its revenue - helps to neutralise the impact from the more volatile smartphone and IoT (Internet of Things) segments, DBS said.

Hi-P expects similar revenue but lower profit in Q2 2018, as compared to the year-ago period.

DBS also added that Hi-P "could be a takeover target" due to its small free float.

"Furthermore, with its entrenched relationship with key customers, which include some of the world's biggest names in mobile phones, tablets, household and personal care appliances, Hi-P could be an attractive target for global companies looking to build a base in Asia," the broker wrote.