DBS Group Research has maintained its "fully valued" call on Micro-Mechanics (Holdings), but has trimmed its target price from $2.21 to $1.75, citing worries of a further broad-based slowdown ahead.
The company, which makes parts used in the semiconductor industry, has guided for a "challenging operating environment" for its 4QFY2023 ending June.
Tech consultancy Gartner estimates global semiconductor revenue to drop by 11% this year, versus an earlier projection of down 6.5%, no thanks to "rapid deterioration" of consumer demand and current supply-demand imbalances.
"We expect continued share price weakness on the back of a weak earnings outlook, which could pose as headwinds to its P/E multiple and lead to further derating below its average P/E multiple," write analysts Elizabelle Pang and Ling Lee Keng in their May 2 note.
Micro-Mechanics is now trading near its 4-year historical forward earnings ratio of 24x. Pang and Ling's target price is pegged to a valuation multiple of 21x.
They believe that Micro-Mechanics need to show an improvement in its margins before the stock gets a re-rating.
