Despite a record 3QFY2021 ended March for Micro-Mechanics (Holdings), PhillipCapital analyst Paul Chew has maintained his ‘neutral’ rating for the counter after 9MFY2021 revenue and net profit came below his forecasts for the year at 77% and 64% respectively.
Chew believes that semiconductor supply disruption, particularly in Taiwan and the US, resulted in the lower-than-expected revenue of $17.7 million for the 3QFY2021. “Countries with more automobile exposure suffered from disruption in chip supply,” he notes in a May 2 research note.
In addition, the gross margin of 53.9% for the period was also below his estimates. “We had expected record revenue and increased product complexity to lift margins, mirroring its FY17-18 upcycle when margins were 57% and capacity utilisation [was at] 60%. Current utilisation is only 56%,” he explains.
Chew anticipates the semiconductor industry upcycle to continue, noting that Micro-Mechanics may have upside from its US operations and penetration of front-end semiconductor equipment.
SEE:PhillipCapital downgrades Micro-Mechanics to 'neutral' on priced-in positives
“Increased complexity of semiconductors from collapsing geometries and more advanced materials to handling wafer dies will further consolidate the supply chain and reduce current competition,” he notes.
He also notes that the company is embarking on its second-largest capital expenditure spending this year for further improvements in productivity and automation. However, he expects this to have a lagged impact on Micro-Holdings.
Chew has lowered his FY2021 earnings forecast by 10% and gross margins from 56.5% to 55% to incorporate higher operating expenses. Consequently, his target price for Micro-Mechanics is no $3.02 from $3.35 previously.
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Chew notes that the target price translates to a P/E (ex-cash) of 21 times, which is in line with peers.
Shares in Micro-Mechanics closed 7 cents or 2.19% lower at $3.13 on May 4.
