Executive Chairman Yao Hsiao Tung.
NextInsight file photoTHE MANAGEMENT of Hi-P International signalled at its results briefing last week that it is likely to stage a strong earnings recovery in the second half of this year.
During 2QFY2015, the contract manufacturer of smartphones, tablets and other consumer electronics narrowed its net loss to S$8 million from a net loss of S$13.8 million in 1QFY2015.
One year ago, Hi-P had emerged as one of Xiaomi’s two manufacturers for smartphone metal casing but recently lost the customer due to its failure to achieve competitive yield levels. The project involved complex metal machining processes that were new to many component suppliers, including to Hi-P.
It was the first time Hi-P had encountered a project so complex that over a hundred processes were needed for a smartphone casing.
During 1HFY2015, the Group incurred losses due to start-up costs for its foray into computer numerical control (CNC) machining of metal components. There were higher inventory provisions, high scrap and rework costs and higher new product introduction expenses for new projects. There was also higher labour and depreciation costs incurred for its new facilities in Shanghai.
There is a positive outcome from the Xiaomi experience. “Our learning experience from Xiaomi’s project enabled us to ramp up quickly to achieve profitable yields for new projects secured year-to-date,” said Deputy CEO El Tay at Hi-P’s results briefing. Executive Chairman Yao Hsiao Tung, COO Gary Ho and CFO Samuel Yuen were also present at the meeting.
Deputy CEO EL Tay.
NextInsight file photoCapital expenditure by the Group in 2QFY2015 was S$56.3 million, adding on to the S$50.3 million invested in 1QFY2015. Production capacity was ramped up during 1HFY2015 to reach more than 3,000 CNC machines currently, compared to less than 2,000 machines last year.
The huge increase in CNC machines was possible with substantial co-investment from a leading US smartphone manufacturer.
“Our relationship with this key customer was unstable for the past 2 years but this has changed. We are now its key strategic partner. They have many product segments and we are placed in all product segments, including both interior components as well as exterior casing. The business is profitable and we are seeing more projects as a tier one supplier.
“By the end of this year, we will have more than 4,000 CNC machines. That will enable us to take on a project of any size.” he said.
Turning around soon
With mass production kicking in with effect from 3QFY2015, management believes the turnaround in 2HFY2015 will be strong enough to lift FY2015 net profit above the S$10.5 million that it posted for FY2014.
Hi-P has a strong project pipeline in the second half of this year, including projects for no.2 PRC smartphone brand LeTV.
“I am confident that we will be competitive in most processes next year,” said Mr Yao. Hi-P has three main legs of growth: original design manufacturing (ODM), its niche plastics components manufacturing, and now CNC machining of metals.
On Tuesday (11 August), RHB analyst Jarick Seet upgraded Hi-P from a 'Sell' to a 'Trading Buy', with a target price of 56 cents, 19% above its stock price of 47 cents on Wednesday.
