In a Tuesday report, analyst Ling Lee Keng says capacity utilisation has improved from less than 40% in 1Q17 to about 60% to 70% now.
With the continued ramp-up in production, Ling expects utilisation rate to peak at about 70% by 4Q17.
Stronger-than-expected production ramp-up and demand would help to boost sales while better operational efficiency would help to improve margins.
“We are the only broker covering Hi-P,” says the analyst, “We believe the market under-appreciates the potential of the capacity ramp-up and Hi-P’s strong cash-generating capabilities.”
Hi-P’s strong 1H17 results, which is traditionally a much weaker period compared to 2H, should also help allay any market scepticism.
DBS has therefore raised its FY17F and FY18F earnings by 3% each, after factoring in further ramp-up in production. It has pegged a PE valuation of 13.2x on FY18F earnings for Hi-P, as peers have re-rated after the strong results from Apple.
“We maintain a 10% discount to peer average, given its smaller scale. Our target price works out to $1.67, up from $1.45 previously,” says Ling.
As at 10.42am, shares in Hi-P are up 2 cents at $1.43.
