HI-P INTERNATIONAL: To benefit from Russian YotaPhone2, says OSK

Excerpts from analysts' report

OSK-DMG analysts: Jarick Seet (left) & Terence Wong, CFA At the APEC meeting in Beijing, Russian President Vladimir Putin gave his Chinese counterpart Xi Jinping a dual-screen YotaPhone 2, hinting a potential future cooperation on this device, which will be officially launched in Russia and Europe in December, then in China and the SEA in 1Q15. As its original design manufacturer (ODM) partner, Hi-P should stand to benefit from the ramping up of this potentially revolutionary phone. Maintain BUY and SGD0.87 TP (32% upside).

 Co-operation with China. YotaPhone 2, the first smartphone with dual-screen, will be available in most parts of the world by 1Q15. It consists of a LCD screen on the front and a Kindle-like screen on the back, with improved sensitivity for a more pleasant reading experience. We believe YotaPhone will be a key player in the Chinese market in the next few years, especially judging from how resolute President Putin was in confirming that his country will cooperate with China on YotaPhone.
 

 Seizing market share from Kindle. Before the arrival of YotaPhone 2, consumers did not have a choice of a mobile phone model with an E-ink display, or better known as the Kindle screen. The older version is only available in Russia, but with the upcoming worldwide launch of YotaPhone 2, we believe it will be able to tap into the current target market of Kindle, which should also benefit Hi-P indirectly.
 

 Bright outlook ahead. Given its robust pipeline of projects, supported by the ramping up of Xiaomi – the world’s third-largest mobile phone maker – and the upcoming worldwide launch of YotaPhone 2, we believe Hi-P is poised for a turnaround and reinstate our bullish view of a record 4Q14.

With a new factory in place to accommodate a shift in its product mix from plastic to metal components, we believe the gloomy days impacted by Motorola and Blackberry are over, with a brighter outlook ahead. As a result, we expect a robust FY15 with an over 200% NPAT growth up to approximately SGD40m, which may bring down its recurring P/E to 13.5x. We think the share price is very attractive at current levels, especially given the company’s potential turnaround. 
 

 Maintain BUY with our TP unchanged at SGD0.87, based on 1.2x peer average FY14 P/BV, implying a 32% upside from current levels.


See video of Putin with Xi: http://rt.com/news/203747-yotaphone-putin-present-china/

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