Asked on 10 May 2019
Discuss anything about Hi-P International SGX: H17 share price, dividends, yield, ratios, fundamentals, technical analysis and if you would buy or sell Hi-P International SGX: H17 on the SGX Singapore markets. Do take note that the answers given by our members are just your opinions, so please do your own due diligence before making an investment in Hi-P International SGX: H17
TL;DR The business looks quite strong with good profitability, balance sheet and asset efficiency. Their valuation looks good too, but US-China trade relations might dampen growth.
Source: Hi-P International Limited
Hi-P provides one-stop solutions such as product development, component manufacturing to complete product assembly. Their products can be classified into three broad categories: Wireless (smartphones), Computer Peripherals (Internet of Things) and Consumer Electronics.
Revenue has been increasing steadily over the past few years, while net profit has been increasing as well. Net profit margins have also increased over time, which suggests that profitability has improved.
The segment which contributes the highest revenue is precision plastic injection moulding at 67% of total revenue, followed by Assembly. Most of the revenue also originates from China (50%), followed by the Americas (28%). Hence, there seems to be more concentration risk in China and in precision plastic injection moulding.
Overall, their balance sheet seems quite healthy as shown by their very low debt levels and high cash balance. However, the firm's short-term liquidity don't seem very high. Overall, the balance sheet of the firm still is strong.
The firm's cash flow seems quite strong as well. This is evidenced by their high free cash flow derived from good cash flow from operating activities. This also had been supported by their working capital management. Despite having high capital expenditures, the firm still managed to produced healthy cashflows. I do believe that their dividend payments are sustainable by looking at their high free cash flow to equity, low debt levels and high cash balance.
These metrics look pretty good as well. ROIC looks particularly high because of their high cash balance. Overall, these metrics show that the firm is making good use of its assets and capital to grow earnings.
Just looking at their multiples, the shares seem to be trading at quite a good price. This is probably why these shares were picked up by Motley Fool when he used the Magic Formula. Although profitability metrics don't seem particularly outstanding, their cashflows do look particularly healthy and sustainable. Furthermore, the firm looks quite efficient in utilising its capital as well.
However, I do worry about the risks that this business faces. It could be that investors had priced the expected risks into their valuations as already, which may explain the stock's cheapness.
Source: Knowledge at Wharton
One of the strengths that Hi-P has is that revenue has been maintained amid trade-war tensions. Even with downward pricing pressure from its customers, they have been also able to enhance operational efficiencies to minimise the drop in margins. Going forward, the outlook remains cloudy and margin pressure is expected to persist.
The industry is also quite volatile and product life cycles have become shorter. This presents risks where margins might be thinned to keep products more competitive
There is also a wide Forex exposure since 90% of Hi-P’s total revenues are in USD, but costs are mainly in RMB. Finally, the need to report their currency in SGD. Changes in these exchange rates can lead to different performances.
The firm faces high pressure from US-China trade relations. This might result in earnings being dampened and reduce growth potential.