Micro-Mechanics Holdings Ltd - Phillip Securities 2020-02-12: Signs Of Recovery, But Priced In

MICRO-MECHANICS (HOLDINGS) LTD (SGX:5DD) | SGinvestors.io MICRO-MECHANICS (HOLDINGS) LTD (SGX:5DD)

Micro-Mechanics Holdings Ltd - Signs Of Recovery, But Priced In

  • Micro-Mechanics (SGX:5DD)'s 2Q20 revenue and PATMI were within our expectations. Interim dividends increased by 25% to 5 cents per share. Micro-Mechanics pays an attractive yield of 6%.
  • Recovery is underway with the first revenue and earnings growth after 5 quarters of decline. FY18’s record revenue was a challenging comparable.
  • We have not changed our FY20e earnings forecast. It still implies a 40% y-o-y jump in 2H20e earnings. The recent closure of the Suzhou plant will be disruptive as China represents 30% of sales. We expect some customers to shift some of their orders to Micro-Mechanics other SE Asian plant. But this event has raised downside risk to our forecast as global growth slows.
  • Our REDUCE recommendation and target price of S$1.60 is unchanged. We benchmark our valuations to 15x PE, semiconductor back-end peer valuations.



The Positives


Revenue and earnings growths

  • Revenue and earnings growths after five quarters of decline. A large part of the recovery was from China (+20% y-o-y) and Taiwan (+37% y-o-y). Sales in SE Asia was surprisingly subdued with a modest decline.

Interim dividends jumped 25% to 5 cents per share.

  • We were pleasantly surprised by the rise in interim dividends. It is the first increase in two years. Full-year annual dividends of S$15mn (or 11 cents per share) is supported by the estimated operating cash-flows of S$21mn per annum (before capex of S$6mn).


The Negative


Temporary closure of Suzhou plant.

  • Revenue fell for the 5th consecutive quarter y-o-y in 1Q20. Admittedly, it is also the 5th consecutive miss of our revenue estimates. After the bumper semiconductor ramp in 2018, revenues for Micro-Mechanics are returning to steady-state annual revenues in the mid-S$50mn. We are not lowering our revenue estimates as we are modelling in recovery in 2H20.


Outlook






Paul Chew Phillip Securities Research | https://www.stocksbnb.com/ 2020-02-12
SGX Stock Analyst Report REDUCE MAINTAIN REDUCE 1.600 SAME 1.600



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