Manufacturing Integration Technology Ltd - CIMB Research 2018-01-09: Winning Orders Again

Manufacturing Integration Technology Ltd - CIMB Research 2018-01-09: Winning Orders Again MFG INTEGRATION TECHNOLOGY LTD M11.SI

Manufacturing Integration Technology Ltd - Winning Orders Again

  • Manufacturing Integration Technology Ltd (MIT) is a capital goods supplier primarily serving the semiconductor industry.
  • Management believes that the company will benefit from the strong outlook for the global semiconductor industry.
  • MIT has announced new order wins in the past 12 months.
  • MIT had a net cash balance sheet as of end-Jun 2017 and has adopted a 25% dividend payout policy.
  • MIT posted net loss in FY16 and is trading at a historical FY16 P/BV of 1.37x versus AEM’s 4.76x and Vitrox’s 11.41x.



Company description 

  • Manufacturing Integration Technology Ltd (MIT) was founded in 1992 by its Chairman and Managing Director, Mr. Tony Kwong, to provide industrial automation services to the electronics industry in Singapore. In a span of 25 years, MIT has evolved to become a capital goods supplier serving the semiconductor, solar and contract equipment manufacturing (CEM) industries in Singapore, USA, Europe and Asia. 
  • MIT became a publicly listed company in 1999 with its shares traded on the Mainboard of the Singapore Exchange Ltd.
  • The group operates from two rented facilities; one in Ang Mo Kio (Singapore) and the other in Jiading District (Shanghai, China). Its corporate headquarters is in Singapore together with its R&D centre for semiconductor equipment. Its semiconductor equipment is manufactured in Singapore while the heavy and bulky solar machines are assembled in the Jiading facility. MIT provides CEM services to a wide international customer base from both facilities.
  • In its semiconductor business, the company primarily designs, develops and distributes a wide range of automated equipment that caters to the front-and back-end processes of Integrated Circuits assembly. Its flagship range of high-end semiconductor equipment includes wafer level die marking and sorting systems, vision inspection, laser marking and tape and reel systems.
  • Manufacturing Integration Technology (MIT)’s customers include Micron Technology Inc (MU US, Not Rated), Texas Instruments Inc (TI US, Not Rated) Maxim Integrated Products (MXIM US, Not Rated), STMicroelectronics NV (STM FP, Not Rated), Infineon Technologies AG (IFX GY, Not Rated), Advanced Semiconductor Engineering Inc (2311 TT, Hold, TP: NT$42.00), Amkor Technology Inc (AMKR US, Not Rated), amongst others. etc - all of which are renowned global players in their respective semiconductor spaces. Its top five customers accounted for 75% of MIT’s FY16 revenue.
  • In the solar business, MIT designs and produces high-end solar equipment such as laser scribers and ablation solutions for the Photovoltaic (PV) Industry.
  • In the CEM business, MIT’s key subsidiaries are i.PAC Manufacturing Pte Ltd (Unlisted), and AMS Biomedical Pte Ltd (Unlisted). i.PAC Manufacturing and AMS Biomedical provide modular and full turnkey assembly, system integration, reliablility testing, packing and distribution services for different industries.
    1. i.PAC Manufacturing's depth of expertise in mechanical, electronics and electrical engineering also embraces vision systems and laser technology, enabling it to handle wide ranging complex projects across multi-electronic sectors such as in displays, semiconductors, storage media, aerospace, solar and other high-tech capital equipment industries.
    2. AMS Biomedical, with its ISO9001 and ISO13485 accreditation, is a leading choice as a contract manufacturer of medical equipment and devices, specifically for the medtech industry, according to management.
  • Underpinning the above core businesses are the precision machining capabilities of its overseas MIT (Shanghai) plant. Shanghai's operations offer high precision products manufactured to tight tolerance supporting the electromechanical components and sub-systems sectors for an equally wide range of industries within and outside of China. 
  • According to management, the facility is equipped with high-speed and highly versatile machines to ensure top quality finishing of products at the most competitive cost.


Financials 

  • As Manufacturing Integration Technology (MIT)’s core business is in the semiconductor industry, the group has historically experienced fluctuations in revenue and profitability given the cyclical nature of the industry.
  • In the past five years, MIT recovered from net loss of S$6.5m in FY13 to register net profit of S$10.2m in FY14, followed by a higher S$15.4m in FY15 before slipping into the red again to net loss of S$5.5m in FY16. Since then, MIT returned to positive net profit of S$2.8m in 1H17, as orders from customers resumed. 
  • In its 1H17 results announcement on 4 Aug 2017, management announced that its order book as at 4 Aug 2017 stood at S$22.4m.
  • According to the World Semiconductor Trade Statistics Association (WSTSA), global semiconductor sales are forecast to hit US$408.7bn in 2017F. This would mark the industry’s highest-ever annual sales and the first-time sales crossed the US$400bn mark. For 2018F, WSTSA is projecting that all major product categories and regions will continue to see yoy growth. It expects global semiconductor revenue to grow by 7.0% yoy in 2018F.


Strong balance sheet 

  • Manufacturing Integration Technology (MIT) has witnessed and overcome numerous economic cycles in the past 25 years of its corporate history. The key factors that allows MIT to rise from these economic down cycles, according to management, are:
    1. positive growth prospects for the semiconductor industry underpinned by the technological capabilities that the group has honed over the years;
    2. a blue-chip customer base, and
    3. a strong balance sheet that enables the group to quickly recover from the bad patch, as well as low reliance on debt financing.
  • Over FY12-16, MIT has been in a net cash position. As at end-Jun 2017, MIT was in a net cash position of S$19.7m or S$0.0868 per share. Net cash per share as at end-Jun 2017 of S$0.0868 represents 31.6% of its share price of S$0.275 on 5 Jan 2018. 
  • Given its substantial net cash position and limited capex needs, the company announced (on 2 May 2017) that it would implement a formal dividend policy of paying out not less than 25% of its net profit. 
  • In the profitable years of FY14 and FY15, MIT’s dividend payout ratio was 10.8% and 14.7%, respectively. In 1H17, MIT proposed an interim DPS of S$0.025 or a dividend payout ratio of 19.8%.


1H17 performance 

  • Revenue grew 51.9% yoy to S$33.1m in 1H17 and gross profit margin was 34.0%. It registered turnaround from net loss of S$833,000 in 1H16 to net profit of S$2.8m in 1H17. 
  • Free cash flow generated in 1H17 was S$5.4m.


Valuations 

  • Manufacturing Integration Technology (MIT) incurred net loss in FY16. 
  • MIT did not pay any dividends for FY16 and is trading at a historical FY16 P/BV of 1.37x versus AEM’s 4.76x and Vitrox’s 11.41x.




William TNG CFA CIMB Research | http://research.itradecimb.com/ 2018-01-09
CIMB Research SGX Stock Analyst Report NOT RATED Maintain NOT RATED 99998 Same 99998


* This Eyes On the Ground report represents a preliminary assessment of the subject company, and does not represent initiation into CIMB's coverage universe. It does not carry investment ratings and CIMB does not commit to regular updates on an ongoing basis.



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