JT 8.2016This article by Jennifer Tan (left, Director, Research & Products,  Equities & Fixed Income, at the Singapore Exchange) was published in SGX's kopi-C: the Company brew series on 29 December 2017. The article is republished with permission.

Hi P factoryHi-P is a globally leading integrated contract manufacturer for consumer electronic components and products with 13 manufacturing plants worldwide. (Photo: Company)

At 77, Yao Hsiao Tung cuts a sprightly figure. Beneath his unassuming demeanour lies an indomitable will and razor-sharp mind.

The Executive Chairman of SGX-listed electronics contract manufacturer Hi-P International Ltd attributes his trademark resilience to his growing up years, when he was bullied constantly.

"Because my father changed jobs frequently, we relocated a lot. Whichever school I went to, I was seen as an outsider and always bullied," China-born and Taiwan-raised Yao recalled.

"But the more I was bullied, the more adaptable and resilient I became."

Yao Hsiao Tung 2.2015
LQM 000066Your customers may lose confidence, your suppliers may lose confidence, your employees may lose confidence. But it's critical that you do not lose confidence.


- Yao Hsiao Tung

Executive Chairman
Hi-P International

(Photo: Company)

For the graduate of National Kaohsiung University of Applied Sciences, an old Chinese proverb about one's fighting spirit - 没有不景气, 只有不争气 (mei you bu jing qi, zhi you bu zheng qi) - resonates deeply.

It means no economic downturn can prevail if one has sufficient determination and resolve.

Armed with nothing but tenacity, Yao started his career in the precision tooling and plastic injection molding industry in 1972 by applying for, and landing, a job with US conglomerate DuPont.

"There was no one to teach me the ropes, so I had to learn everything about tool design from scratch. In those early years, I literally worked from dawn to dusk."

In 1979, Yao was transferred to Singapore by his employer. That was when he started learning English. "At the time, I had virtually no knowledge of spoken English. But I had to make cold calls to customers, so I was forced to pick up the language."

Eleven years later, Yao joined Hi-P International as Managing Director. He was appointed Group Executive Chairman and Chief Executive Officer in 2003.

Those were tumultuous years, as regional economies reeled from the fallout of the Global Financial Crisis. "It was very difficult to hire tooling experts, and the company was losing money. There were also disagreements between the partners about strategy," he recalled.

But Yao persevered. Through sheer grit and focused execution, he transformed Hi-P from a tooling house in the 1990s into a components manufacturer in 2000, and some years later, a full-fledged electronics contract manufacturer.


Twists and Turns


Hi-P, which listed on SGX Mainboard in December 2003, has a current market capitalisation of over S$1.5 billion. The Group has evolved into an Original Design Manufacturer (ODM) and Electronics Manufacturing Services (EMS) provider, with expertise in both plastics and metals.

With a staff strength of nearly 15,000, it owns 13 manufacturing plants across six locations in China, Poland, Singapore and Thailand. It also has marketing and engineering support centres in China, Taiwan, Singapore and the US. Product categories span the wireless, computer peripherals and consumer electronics segments.

According to analysts, the Group's key customers include Seagate Technology, Colgate-Palmolive, and Keurig Green Mountain. It has been listed as one of Apple's top 200 suppliers globally since 2012, making buttons, keypads and SIM card trays for the US tech giant.



LQM 000066When a crisis hits, worry and anger will not solve the problem - it's important to be able to calm down and assess the situation that has developed.

- Yao Hsiao Tung
Executive Chairman
Hi-P International

The road ahead, however, remained bumpy. Over the years, Yao had to grapple with cashflow issues, delinquent customers, and in 2000, the loss of several hundred staff in China from poaching.

"When a crisis hits, worry and anger will not solve the problem - it's important to be able to calm down and assess the situation that has developed," he said.

"Once you have thought through the key issues, you should be able to find the relevant answers."

In 2015, Yao's fortitude was again severely tested when a joint venture to design and manufacture dual-screen smartphones for the Yota brand collapsed after the Russian firm failed to take delivery of inventories.

Hi-P, which suffered losses to the tune of S$100 million that financial year from large write-downs, initiated arbitration proceedings against Yota. The chapter was finally closed in January 2017 with a US$17 million out-of-court settlement.

The episode taught Yao many valuable lessons. He reshuffled Hi-P into four business units to diversify its client base, stepped up internal controls, as well as implemented systems to manage and limit risk exposure.

"Your customers may lose confidence, your suppliers may lose confidence, your employees may lose confidence. But it's critical that you do not lose confidence," Yao said.

"In each situation, I was able to overcome the challenges without succumbing to anger and despair."

 

star bullet Building a Legacy

Yao has a three-pronged strategy to keep Hi-P on a growth trajectory - developing the right values, determining the Group's goals and direction, and exercising self-discipline through the execution process.

These principles are detailed in his book - aptly entitled "Aspiration" and dedicated to "All Enterprising and Ambitious Chinese People" - published in 2005.

Last year, Hi-P returned to the black - swinging to an attributable net profit of S$54.5 million from an attributable loss of S$45.4 million in 2015. As at 30 September 2017, it had grown its cash and cash equivalents to S$296.9 million, from S$120.7 million as at 31 December 2016.

The Group has forecast higher revenue and earnings for the current fourth quarter, as well as the financial year ending 31 December 2017.

In the year-to-date, Hi-P shares have tripled in value - surging 265% - while the benchmark Straits Times Index (STI) and FTSE ST All-Share Index have gained 18.1% and 17.7% respectively in the same period.

Stock price  S$1.97
52-week Range 47c to S$2.06
Market Cap S$1.6 bn
Price/Book 3.3 x
Price Earnings 17.7 x
Dividend Yield 10.8%
Source: SGX StockFacts

Looking ahead, Yao expects Hi-P to grow at a fairly rapid clip, driven by increased projects from new customers, as well as existing customers, in the wireless and Internet of Things (IoT) segments.

The Group plans to explore merger and acquisition opportunities in the medical and automotive sectors, as well as expand into markets such as the Eurozone, Japan, and China. "We're very US-centric right now," he added.

According to IDC, global smartphone shipments are expected to rise 1.7% year-over-year to 1.5 billion units in 2017, and grow by a compounded annual rate (CAGR) of 3.3% to 1.73 billion units by 2021.

Global spending on IoT is also projected to rise 16.7% in 2017, reaching over US$800 billion in total expenditure, while the worldwide wearables market is forecast to expand 16.6% this year, IDC noted.

"At 77, I'm more ambitious than ever about what the Group can achieve," said Yao, who is Hi-P's single largest shareholder with an 83% stake.

"My passion is to leave a legacy on earth - and that legacy is my story, which I'm writing every day. I'm full of confidence that the future of Hi-P will be even brighter than it is today."

 

Bottom-Up Approach

The Group's biggest bugbear, however, is finding and retaining good talent. "We need to have the right talent in place to grow quickly. We have enough resources to maintain our existing businesses, but we need to develop our talent pool to meet future growth targets," he added.

Last month, Hi-P promoted its Vice President of Business Development, Yong Inn Nam, to Chief Operating Officer. Yong, 56, joined Hi-P in 2015.

For its succession planning, the Group has devised a talent development system using a bottom-up approach. "We want to quickly promote good employees that perform well, and put in place a pipeline of successors - not just one successor," Yao noted.

This dovetails with the Group's culture, which celebrates a people-oriented, as well as results-oriented, spirit.

 

LQM 000066We want to quickly promote good employees that perform well and put in place a pipeline of successors - not just one successor.

- Yao Hsiao Tung
Executive Chairman
Hi-P International

Above all, Yao values integrity and honesty - principles that were indelibly etched in his mind by his father, who passed away at the age of 94.

As a child, Yao remembers his father taking him on a long journey on foot to buy walking shoes. "My father bought two pairs from the shoemaker - I wore one, and he carried the other pair. Halfway home, we realized we had only paid for one pair. Without blinking an eye, my father turned us around, and we walked all the way back to pay for the second pair."

The key principle is never shortchanging others, he added. "Someone may take advantage of you, but you should never be the one to take advantage of him."

When he's not managing the day-to-day operations of the Group, Yao enjoys his daily swim and tucking into a Japanese or Italian meal. "My passions in life are exercising and working, so my wife complains we never go on holidays," he grinned.

He remains in good health despite his age. "It all stems from my ability to manage stress. During the day, my full concentration is on work, but when I go home, I release my mind," he added.

"Many often speculate I may not be able to get through another year, but so far, I've proved them wrong, and have been able to turn around each and every crisis."


Financial results

Year ended 31 December
(S$ '000)
2016 2015 2014 2013
Revenue 1,305,071 1,362,577 951,396 1,262,467
Gross profit 155,849 70,870 70,009 97,551
Net profit / loss attributable to owners 54,525 -45,427 10,464 6,398



Quarter ended 30 September ($ '000) 3QFY2017 3QFY2016
yoy chg
Revenue 411,336 387,339 6.2%
Gross profit 68,069 54,593 24.7%
Profit after tax 38,368 30,713 24.9%

Source: Company data

 


Outlook & Risks
  • Taking into account the industry outlook for the smartphone, Internet of Things (IoT) and consumer electronics markets, as well as to overcome industry and business challenges, the Group will maintain its focus on: Enhancing capacity utilisation and driving manufacturing yield improvement
    • Increasing automation across all manufacturing locations
    • Tightening cost controls and improving operational efficiency to adopt a leaner business model
    • Intensifying business development efforts to further diversify the Group's customer base
    • Exploring growth opportunities that are synergistic to the Group's operations
  • The Group continues to strive for sustainable growth and to be one of the top contract manufacturers in Asia by providing one-stop, dedicated solutions to fulfill its customers' needs - from product development and component manufacturing to complete product assembly.
  • Barring unforeseen circumstances, the Group's performance guidance is as follows:
    • The Group expects higher revenue and profit for 4Q 2017 as compared to 4Q 2016 and 3Q 2017.
    • The Group expects higher revenue and profit for 2H 2017 as compared to 1H 2017.
    • The Group expects higher revenue and profit for FY 2017 as compared to FY 2016.


Hi-P International Ltd

Hi-P started out in 1980 as a tooling specialist in Singapore, and has since grown to become one of the region's largest and fastest-growing integrated contract manufacturers. The Group provides a one-stop solution for customers in various industries, including telecommunications, consumer electronics, computing & peripherals, lifestyle, medical and industrial devices, ranging from design, electro-mechanical parts and modules to complete product manufacturing services.

The Group has 13 manufacturing plants globally, spanning six locations in the People's Republic of China (Shanghai, Chengdu, Tianjin, Xiamen, Suzhou and Nantong), Poland, Singapore and Thailand. It has marketing and engineering support centres in PRC, Singapore, Taiwan and the USA. Its customers include many of the world's biggest names in mobile phones, tablets, household & personal care appliances, computing & peripherals, lifestyle, medical devices and industrial devices.

 

For the financial results for the third quarter ended 30 September 2017, click here.

The company website is: www.hi-p.com.

The ccompany's Stock Facts page is here.


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