Click on the above 83-second video for an idea of what went on in Hi-P International's results briefing last Friday which was held at the Fullerton Hotel.

HI-P INTERNATIONAL is one of only a few Singapore-listed companies that publicly provide guidance regarding its revenue and profit for the next couple of quarters.

For this year, it is saying that 1Q will see a loss while 2H, an improvement leading to a full-year increase in profit and revenue compared to 2012.

hip_chrt2.13Hi-P stock rode up and down with its business prospects, yielding profits for traders who caught the stock at the bottoms. Hi-P is one of the region's largest integrated contract manufacturers, serving customers in a wide range of industries such as telecommunications, consumer electronics and computing.

These are fast-changing markets and their impact on Hi-P is quickly apparent when its customers' products rise or fade away, or demand falls below expectations.

This volatility formed the backdrop of the discussion at a Hi-P results briefing last Friday at Fullerton Hotel. 

We reproduce highlights of the Q-and-A session below -- it should be enlightening to investors to appreciate the nature of the business, as well as its investment risks and rewards.

Before that, a recap of 2012: Hi-P's net profit fell 60.1% to S$17.9 million although revenue dipped only 3.1% to $1.17 billion.

The proposed first and final dividend is 1.2 cents a share, down by 50% year-on-year.

You can get the details of the business performance in the company's press release and powerpoint materials at the SGX website. while we produce some of the questions and answers from the analyst briefing, as follows ------> 

Q: Can you comment on a key customer, RIM (Research in Motion)?

248_Yao_Hsiao_TungYao Hsiao Tung, executive chairman. NextInsight file photoMr Yao Hsiao Tung, executive chairman and CEO: The situation is positive. Gary will elaborate.

Gary Ho, COO: Last year there was a slowdown in their volume. With the recent BlackBerry 10 launch, from market reports we are seeing positive signs. The coming launch in North America will be critical for them.  

We are receiving very good feedback and seeing volume picking up and the customer is discussing with us to increase capacity. This has not been factored into our guidance for 1Q.

Mr Yao: The mobile phone business is volatile. We are lucky that when one customer goes down, another goes up. 

Q: It's good to hear about RIM. Is there a risk that you may not be able to ramp up fast enough for RIM? I heard they are accelerating their orders through Asia.

Gary Ho: We started ramping up in mid to late of Q4. The customer is trying to build sufficient quantity to fill the channels. We are working with the customer to get more quantity out.

Q: In that case, how come your guidance is for 1Q revenue to be similar year-on-year?

Samuel Yuen, CFO: Although RIM is a major customer, we have many other customers. Traditionally, Q1 and Q2 are low seasons. And as you know, the industry is facing tough pricing pressure.

Q: Can you explain why your capex plan announced in October involved $300 m  to be spent in 2013. Then in January, within 2 months, you changed that to $150 m to be spent over a few years.

Mr Yao: The market is very dynamic. There is one huge EMS company -- in the past after Lunar New Year, they fight for workers. Recently, instead, they try to reduce their manpower. Last year, our customers projected high volumes. At the end of the year, we did only about 50% of the business projected. Good thing about Hi-P is, our customer base is quite diversified.

Samuel Yuen: We have gathered all the customer input and done our internal analysis. Eventually, we decided to be conservative. We are starting to build the building in Nantong. In order to achieve the original plan, we needed a lot of overtime work, even through the Chinese New Year. After considering this and the cost, we decided to build gradually. On top of this, we will also try to utilise existing capacity concurrently. 

Q: You are guiding for higher revenue and higher profit this year. Q1 is expected to be a loss -- how about Q2, Q3 and Q4? You must be expecting a strong pick-up to get that full year increase.

Mr Yao: Q1 loss is partly because of a conservative provision for a recent fire in our Shanghai factory, although there will be some insurance cover. 

Samuel Yuen: The forecast of a loss is also because due to a lack of economies of scale. And you know, last year, we invested a lot, so Q1 depreciation will be higher year on year. With that, we are expecting a small Q1 loss.

Q: Will Q2 see a strong ramp-up, considering the Blackberry launch in North America?

Mr Yao: Traditionally Q2 is stronger than 1Q. RIM will be back much stronger. For Q3 and Q4, some new customers'  projects will start mass production. So those will be much stronger quarters.

Q: 2012 was the first year after so many years that you had a negative operating cashflow. You had a net cash cushion that has now diminished to S$33 m compared to $220 m a year ago....

Samuel Yuen: This year we will build up the cushion again.

Mr Yao: We have spent a lot on the Nantong factory. I believe it will benefit us in the future. We will consolidate gradually.



Recent articles:  

HI-P: 3Q net profit of S$3m only but 4Q expected to be stronger 

DBS Vickers' small/mid-cap picks, HI-P is DMG's sure bet 


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