SINGAPORE (Sept 4): Daiwa likes Micro-Mechanics, the designer and manufacturer of high-precision tools for the semi-conductor industry.
This year, strong rebound in share prices of technology-related names has been one of the key highlights in the Singapore stock market.
Micro-Mechanics also benefited from this shift in industry sentiment, with its shares rising by 74% YTD versus 13% by the STI Index.
This is because its revenues are positively correlated to global semiconductor sales, given the quantity of consumables required during wafer fabrication and assembly process are directly proportional to the volume of semiconductor chips processed.
In June, the World Semiconductor Trade Statistics raised its 2017 sales growth forecast to 11.5% from 6.5% previously.
In a unrated report out today, Daiwa analyst Ramakrishna Maruvada says he recently visited the company to better understand its operating outlook.
Micro-Mechanics was listed on the Singapore stock exchange in 2003. It sells a range of consumables -- rubber tips, metal parts -- used in the semiconductor wafer-fabrication and assembly processes.
It has six manufacturing plants located in Singapore, China, Malaysia, Philippines, and the US, and serves over 650 customers spread across various geographies. China, Malaysia and the US markets together accounted for 63% of the company’s FY17 sales.
Micro-Mechanics has reported a steady improvement in its financials over the past several years. Its earnings rose by a 28% CAGR over FY12-17 on the back of an 8% revenue CAGR and due to 11.1ppt improvement in its gross margins over this period.
Management attributed the increasing gross-margin trend to 57.4% in FY17 from 46.3% in FY12 to higher capacity utilisation, as well as improvements in productivity and cycle-time-the latter two made possible by its lower manpower and six-day cycle-time initiatives.
“Looking ahead, the company said it is focusing on automating more processes and intends to upgrade some of its equipment to drive further cost efficiencies,” says Maruvada.
According to Maruvada, Micro-Mechanics is a cash-generative business with a dividend policy of “at least 40%” of its earnings. In FY17, the company paid out 75% of its earnings.
In fact, Micro-Mechanics has paid dividends every year since its listing, with cumulative payouts of 53.9 cents totalling nearly three times its IPO price.
Based on its FY17 financials, Micro-Mechanics is trading at $1.51 or PER of 14.1x with dividend yield of 5.3%. It offers an ROE of 28%.
