SINGAPORE (Aug 22): Maybank Kim Eng likes Micro-Mechanics as it's earnings jumped 23-27% y-o-y over 2Q-3Q17 as turnover was buoyed by robust global chip sales since late 2016 to record levels in June this year.
With that, the group posted a higher interim DPS of 3 cents in 1H17 compared to 2 cents in 1H16.
In FY16, Micro-Mechanics improved its operational efficiencies and gross margin steadily to 57% from 46% in FY11.
Micro-Mechanics is the designer and manufacturer of high precision consumable tools and parts.
The group boasts an in-house design team that continuously met new tooling requirements such as miniaturisation and nano-level precision, from more than 600 customers globally, including various blue-chip names.
With five facilities across Singapore, Malaysia, China, US and the Philippines, the group is able to produce tools for machines from different equipment makers and cater to on-demand orders.
The group believes that its competition is limited and during industry down cycles, its consumable tools and parts provide sales resilience.
In an unrated report on Monday, analyst Teh Kwong Yew says, “Its growing net cash position and zero borrowings also serve as an added buffer. Yet, it is well-poised to benefit from structural industry growth, as more tools will be necessary to produce chips for the proliferation of connected devices.”
Assuming FY16 final and special DPS are maintained in 4QFY17, MMH offers an attractive dividend yield of 5.5%.
“MMH trades at 13.6x trailing P/E, as compared to global industry peer average of 15.8x,” says Teh.
As at 3.29pm, shares in Micro-Mechanics are trading 2 cents higher at $1.30.
