Hi-P’s major customer Research In Motion (RIM) fell 5.5% in after hours trading after it forecast 2Q ending Aug ’09 average sales of around US$3.58bln, below consensus expectations of US$3.61bln and average profit of 94-1.03 cents a share versus consensus forecast of 98 cents. New subscriber addition is expected to be around 4.1mln lower than expectations of 4.2mln.

RIM’s warning is in line with Hi-P’s downbeat outlook given on 5 May ’09 where management warned that 2Q ‘09 sales and profit is expected to be much lower than 2Q ‘08’s $281.5mln (sales) and $27.1mln (profit) and despite good cost control, sales and profit for full year ending Dec ’09 is expected to be lower than last year’s $1077bln (sales) and $102mln (profit). Management blamed the global economic crisis for the downbeat prognosis.

We had downgraded our recommendation from BUY to HOLD then as a result of management’s warning as well as its strong performance since hitting its all time low of 26 cents in Nov ’08.

Hi-P which started its share buy back program on 2 Mar ’09 when the price was 36 cents last bought 800,000 shares at 67 cents each on 3 Jun ’09 but have since stopped buying (the company has only bought back 2.13% of its allowable buy back mandate).

We observe that Hi-P’s last share buy back price of 67 cents on 3 Jun ’09 happens to be about 2.2% below its book value of 68.5 cents. As shown in our table below, we also observe that Hi-P’s share buy back program is much less aggressive in May-Jun ’09 as compared to when its first started in Mar ’09 when the company was almost buying back shares on a daily basis and also accounting for a significant part of the daily trading volume. We believe this likely reflects the downbeat near term prospects (as warned by management) and strong performance of the share price bringing it close to its book value.

The stock which had hit 72 cents on 5 Jun ’09 has since pulled back to close at 62 cents yesterday, putting its market cap at $550.1mln, price to book at 0.9x, trailing PE at 5.4x, trailing price to sales at 0.5x and historical div yield at 3.55%. Net cash now accounts for 37% of its market cap, down from 47% in Feb ’09 when we upgraded our call to BUY. We maintain HOLD.