MICRO-MECHANICS (HOLDINGS) LTD (SGX:5DD)
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
- The pandemic has caused supply chain disruptions in several geographies and sectors. In addition, the possibility of a positive test by its staff might lead to the shutdown of a work area and/or the entire manufacturing plant in order to undertake a full disinfection. Although it is working hard to mitigate this risk by following recommended safety protocols, Micro-Mechanics is wary of any COVID-19 related quarantine or temporarily factory closure.
- See
- Micro Mechanics (SGX:5DD) is one of the participating companies of Invest ASEAN 2021 by Maybank Kim Eng.
Eric Ong
Maybank Kim Eng Research
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https://www.maybank-ke.com.sg/
2021-06-21
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