DBS Group Research analyst Ling Lee Keng has kept a “hold” rating on Micro-Mechanics Holdings (MMH) as the group’s FY2022 revenue reached a new record of $82.5 million, up 12% y-o-y.
The group’s revenue stood in line with Ling’s expectations, while MMH’s net profit stood above expectations by 13%. This was driven by tight control on overhead expenses.
On this, the analyst has kept her target price unchanged at $3.42. However, she has raised her FY2023 earnings forecast by 12% with revenue growth of 10% for the same year, while assuming lower gross margins of 52.0% and net margins of 22.7% amid continued inflationary pressures.
“We anticipate gross and net margins to normalise to 53.0% and [around] 23.5% by FY2024 as inflationary pressures ease,” Ling writes.
The group remains in a sound financial position, says Ling. As at June 30, its total assets stood at $73.7 million, with shareholders’ equity at $58.3 million, and cash and cash equivalents at $20.4 million, with no bank borrowings.
The analyst anticipates gross and net margins to normalise to 53.0% and around 23.5% by FY2024 as inflationary pressures ease.
See also: Test debug host entity
In addition, global semiconductor revenue is forecast to grow by 7.4% in 2022, where World Semiconductor Trade Statistics (WSTS) estimates another 4.6% growth in 2023.
“We anticipate 2022/2023 to see muted growth relative to past years although the long-term uptrend remains intact, driven by structural trends such as Internet of Things (IoT), 5G adoption, and more,” writes Ling.
Moreover, the consumable nature of Micro-Mechanic Holdings’ back-end tools and front-end equipment parts supports regular demand across the cycle. In most downturn periods, the group’s revenue was observed by the analyst to be relatively less impacted compared to its peers.
See also: Maybank downgrades ComfortDelGro in contrarian call over Addison Lee acquisition worries
“While we believe the outlook remains healthy, we are cautious of higher raw material and labour prices,” Ling adds.
As at 11.37am, shares in Micro-Mechanics Holdings are trading at 3 cents down or 0.92% lower at $3.22 at FY2023 P/B ratio of 7.3x and dividend yield of 4.5%.