Hi-P International's revenue fell 3% to S$1,167m

Earnings dropped for 3rd year in a row.

According to DBS, Hi-P International net profit dived 60% y-o-y to S$17.9m on the back of a 3% drop in revenue to S$1,167m.This is the 3rd year of declining earnings.

Here's more:

4Q12 net profit of S$15.6m comfortably beat our S$10m estimate as gross margin of 10.7% was significantly better than the 7.3% recorded in 9M12, due to a change in product mix. Earnings also benefited from a S$2.0m reversal of impairment loss on Mexico assets. 

Management expects both revenue and profit to improve in FY13 but they have guided for a loss in 1Q13 as seasonally lower volumes and lower Apple orders are unlikely to cover a higher cost base.

Going by past quarterly performances, it appears that Hi-P’s breakeven sales is higher at >S$280m. 

To be profitable, sales have to exceed breakeven level or more cost cutting is needed. Based on typical seasonality and new product launches from Blackberry, we expect breakeven in 1H13 and a steep ramp up in 2H13. We have cut FY13F earnings by 32% to factor in lower margin assumptions.

We believe Hi-P’s share price reflects most of the downside risk after correcting 20% since our downgrade last Oct.

But, it is too early to turn positive as earnings have yet to stabilise. We have lifted TP to S$0.71 as we roll over to 1x FY13 P/BV. We upgrade the stock rating to Hold on valuation grounds.