NRA Capital Pte Ltd

Written by: Jacky Lee

Tuesday 3 Feb 2015

Micro-Mechanics (Holdings) Ltd – 1H15 results review

2Q15 net profit jumped 96% to S$2.7m

Improved profitability driven by higher sales, margin expansion and tight rein on expenses.

Micro-Mechanics reported a 96% yoy jump in its net profit to S$2.7m in 2Q15. The improvement was due to the strong demand from Semiconductor Tooling segment (+24% yoy), higher gross profit margin of 54.7% and a tight rein on overheads.  Total revenue growth was 23% yoy to S$12.9m.

The group raised its dividend payout to 2 cents per share for 1H15. This will comprise a special dividend of 1 cent per share on top of an interim dividend of 1 cent per share, which are to be paid on 17 February 2015.

Key takeaway from results briefing:             

  • The good results were due to the focus and investments that were put into improving operational efficiency and enhancing customer value. Management believes there is still room for improvement.
  • Headcount has reduced by over 25% in the last 4 years to 440 staff at the end of 2Q15.
  • 1H15 semiconductor tools sales in China and Taiwan grew by 37.4% and 39.5% yoy respectively due to the strong demand of smartphones and tablets.
  • The group intends to continue focus to on the North Asia market, particularly China where chip manufacturing activities are still expanding.
  • The Custom Machining & Assembly (CMA) division is making good progress with its engineering and development initiatives as nearly 70% of its manufacturing has successfully shifted to the new 24/7 machining line in the USA. Currently, the utilisation rate for CMA is still low at about 30% only.
  • CMA incurred a loss of S$179k. To improve this division’s performance, the group is working to expedite this manufacturing transition, strengthen its engineering team and bolster its business development efforts.
  • 2Q overall utilization rate reduced 1% points sequentially to 59% compare to 60% in 1Q15.
  • 3Q expected to be weaker than 2Q due to the seasonal effect of the CNY holiday.  
  • Price premium as compared to its competitors.
  • Capex spending this year expected to be same as last year (around S$6.6m), 1H spend S$2.4m so far.

Valuation:

At S$0.655, Micro-Mechanics is trading at 7.7x annualised FY15 PER, 2.1x PBR and ROE 25%. Coupled with its strong balance sheet and good track record with dividend payout (6% yield projected with total 4 cents dividend), we believe the stock valuation looks attractive at current level. We also see potential from CMA division given its customers base is getting stable and low utilization rate also provides room to grow.

As at 31 December 2014, Micro-Mechanics’ financial position remained sound with cash and cash equivalents of S$13.5m and no bank borrowings.

 


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