Micro-Mechanics Holdings Ltd - Maybank Kim Eng 2021-06-21: Poised For Super-Cycle


Micro-Mechanics Holdings Ltd - Poised For Super-Cycle

Investment case: healthy GPM of > 50%

  • Micro-Mechanics (SGX:5DD) designs, manufactures and markets high precision tools and parts used in process-critical applications for the wafer-fabrication and assembly & test processes of the semiconductor industry. IDC forecasts that the semiconductor market will grow by 12.5% y-o-y to US$522b in 2021, driven by robust growth in consumer, cloud computing, 5G, and automotive.
  • Coupled with its strong emphasis on customer value, focus on process-critical tools & parts and superior industry position, this should enable Micro-Mechanics to achieve its target GPM threshold of over 50%.

Catalysts: accelerates capital investments

  • As the semiconductor industry continues to grow and develop new equipment and processes for manufacturing chips with device geometries below 10 nanometers, management believes that only a handful of suppliers will have the capabilities to meet the increasingly stringent requirements of the industry.
  • In view of the positive outlook, Micro-Mechanics has raised its FY21E capex budget to S$7m to develop a new machining technology, which is essential for making the next-generation of parts for wafer-processing equipment.

Valuations: strong cash generative business

  • Micro-Mechanics is poised to benefit from continuing demand for its products as the semiconductor industry enters a supercycle of multi-year growth. Given the consumable nature of its proprietary tools for A&T processes and cash-flow generative operations, it maintained a robust balance sheet with net cash of S$16.4m and no bank borrowings.
  • Micro-Mechanics also has a good track record of dividend payments since listing in 2003. Based on consensus estimates, the stock trades at 22.4x FY21E P/E with decent yield of 3.5%.

Risks: COVID-19 disruptions

Eric Ong Maybank Kim Eng Research | https://www.maybank-ke.com.sg/ 2021-06-21
SGX Stock Analyst Report NOT RATED MAINTAIN NOT RATED 99998.000 SAME 99998.000