Hi-P surprisingly cuts investment in Jiangsu, China to S$150m

Even construction pace was reduced.

According to CIMB, its suspicion of a mismatch between Hi-P’s initial capacity expansion plans and its weak order visibility has been confirmed with its latest announcement, which the firm believes stemmed from lower visibility from its key customers.

This confirmation of weak visibility in orders affirms our bearish view on the stock. CIMB tweaked its numbers slightly as it reduced its projected capex and debt drawdown but make no changes to other assumptions.

Together with an update on its proposed investment in Nantong City in China’s Jiangsu province, for capacity expansion, Hi-P announced that it will reduce its investment size
in this area from S$300m to S$150m.

It intends to reduce the size and pace of its construction. Instead of completing the entire Phase 1 development of approximately 190,000 sq m by 2Q13, the land area to be developed will now be 100,000 sq m, with 50,000 sq m to be completed by the end of 2013.

Here's more from CIMB:

We believe that this announcement has both positive and negative implications. It confirmed our earlier view that Hi-P’s bold investment plan did not quite tie in with its weak order visibility.

While its investment in capacity expansion in China is now less risky than before, we see this move as a sign that potential orders from its customers may have been greatly reduced.

We also maintain our belief that Apple is the likely key customer driving Hi-P’s expansion plans and that this reduction in orders gels with our channel check findings that Apple has cut back its orders to its suppliers for the iPhone 5.

As such, we believe that the negative implication of this announcement outweighs the positive. We keep our bearish view on Hi-P as this piece of news confirms our belief that order visibility for the company remains weak.