Hi-P International Limited

On this blog article, I would like to discuss my investment thesis about Hi-P International Limited.

I bought Hi-P stock at $0.575 on 22 September 2011 and sold it at $0.82 on 16 May 2017. Accounting for dividend, the absolute profit is 48.2%.

About Hi-P International Limited

Hi-P provides services of tool & Die, molding, and metal forming to the product manufacturers. It was rumored that it provides some parts (probably casing, or button) to Apple – it was not confirmed till today.

Rationale of Investing in Hi-P International Limited Stock

This field was what I used to work in as when I was a young teenager - when we were young men before we could start territory education, most of us had no goals to begin with. For clarity, I never worked for Hi-P at all.  I knew how important this area is to many product manufacturers. Hence, I picked Hi-P among the potential investing in that field.

Hi-P is highly cyclical stock due to its huge exposure to technology-type products. When its price was on low side, I figure that there will be mean reversion. My view is that there should be the ‘normal’ price where Hi-P is able to bring revenue and achieve reasonable amount of profit in the ‘steady state’ business level. Simply put, my investing thesis is to buy Hi-P at low price, which seems to be mispriced as compared to steady state price, which is my selling price.

There is margin of safety:
1) the current Chairman and CEO owns significant number of shares in Hi-P
2) its share price was low enough to compensate against any possible errors

Happenings During the Holding PeriodThere were huge media attention on Hi-P that the potential large sales of Apple’s new Iphone and Ipad was linked to the Hi-P’s revenue. Because of that, it went to $1.035 per share on 1 September 2012.

However, there were no major cosmetic change and technology improvement on most smartphone. Thus, the sale of smartphones and tablets don’t continue to grow and grow like that for given minor changes for every model release.

Hi-P had the plan to build manufacturing plant in Nantong, China. There was delay for that plant construction. With cash flow review, Hi-P scaled down the size of plant construction.

The slowdown in China’s economy also affected Hi-P. It was no wonder why its share price went to $0.365 per share on 1 August 2015. Hi-P under-performed as it failed to meet the announced target in 2015 and 2016.

Hi-P successfully managed its cost and met its expectations. With renewed optimism from local brokerage house, its share price went up towards above $0.80 per share this year.

Rationale of Selling Hi-P International Limited Stock

You probably wonder why I never do cost average on this Hi-P stock. It was because the future of Hi-P is cloudy and there were stocks with better risk-reward propositions.

There will be stiff competition in the aforesaid industry and will also face technology impact, namely, robotics in the future. Thus, I reduced my valuation of Hi-P and learnt from missing the opportunity to sell at high price during positive speculative period. The latter lesson was the reason why I sold stock of Lakeland Industries when there was high speculative positive rumor.

Postmortem Stage

Sure, there was renewed analyst coverage on Hi-P last month. I didn't expect or know that it would rise to $1 per share again. It is strange thing and I didn't took this event to heart. It was great lesson for me about investing in cyclical stock. 

I would invest in cyclical stock with suitable risk-reward proposition but smaller percentage of capital will be allocated. It is harder to know when you can make money. At the same time, it would be easy to do cost averaging when the stock percentage of the portfolio is small. The capital allocation should be emphasized more on compounders and less on distressed stocks and cyclical stocks. It is my current view.