SINGAPORE (Oct 31): Shares in Micro-Mechanics closed 8 cents or 3.9% higher at $2.11 on Tuesday.
In a Tuesday report, Phillip Capital is maintaining its “buy” on Micro-Mechanics Holdings given 1Q revenue and earnings more than doubled its expectations.
“We were modelling revenue and earnings growth of 11% and 24% respectively. 1Q18 growth was more than double the pace we had anticipated,” says analyst Paul Chew.
Phillip Capital says Micro-Mechanics’ development of front-end precision parts is making headway. Sales from the US division surged 58% y-o-y in 1Q18 and it represented the second straight quarter of profits.
To recap, Micro-Mechanics revenue growth is closely tied to the industry semiconductor sales cycle. “We expect the current momentum in sales to sustain, in line with the current synchronised growth in global economies,” says Chew.
While visibility is never perfect for the semiconductor cycle, Chew says investors can take comfort that the current double-digit surge in semiconductor sales began in earnest only in Dec 16.
“So we at least have another quarter ahead of easier comps,” says Chew, “Furthermore, in the last two semiconductor cycles, the positive y-o-y growth ran for 20 and 26 months. The current cycle is only 13 months.”
As for the negatives, Chew warns that administrative expense is running ahead of his expectations as admin expense was higher than expected due to accruals of bonus incentives.
Meanwhile, capex is set to double to cope with the rise in demand and utilisation rate although the company is budgeting a capital expenditure of $10 million for FY18, double from last year’s $5 million.
“We maintain our “buy” recommendation. We raised our target price to $2.50. This is in line with our 18% upward revision in FY18 earnings and increase in PE ratio to 16x. Our PE ratio is tied to the sector valuations for the semiconductor back-end,” says Chew.
