Micro-Mechanics Holdings

OCBC on 29 Aug 2012

Micro-Mechanics Holdings (MMH) reported 4QFY12 results which beat our expectations. Revenue declined 6.8% YoY to S$10.3m, while net profit fell slightly by 0.4% YoY to S$1.4m, such that FY12 revenue and net profit of S$38.8m (-14.4%) and S$4.2m (-38.2%) exceeded our estimates by 2.8% and 7.3%, respectively. A final dividend of 2 S cents/share was declared, bringing total FY12 dividends to 3 S cents/share. This was similar to FY11 and our forecast, and translates into a yield of 7.7%. Looking ahead, sentiment within the semiconductor industry remains cautious, while cost pressures are also apparent. MMH is seeking to mitigate this via the implementation of more automated processes to improve its efficiency and lead time. We keep our FY13 projections and introduce our FY14 estimates. Maintain HOLD and S$0.325 fair value estimate, still based on 9x FY13F EPS.

4QFY12 results exceeds our expectations
Micro-Mechanics Holdings (MMH) reported 4QFY12 results which beat our expectations. Revenue declined 6.8% YoY to S$10.3m, but was 8.1% higher than our forecast. Net profit inched marginally lower by 0.4% to S$1.4m, but compared favourably to our S$1.1m projection. This was due largely to better-than-estimated revenue and gross margin. Sequentially, revenue and net profit showed encouraging signs with strong incremental growth of 10.6% and 55.5%, respectively. For FY12, topline fell 14.4% to S$38.8m, while bottomline slumped 38.2% to S$4.2m; but were 2.8% and 7.3% above our full-year estimates, respectively.

Healthy FY12 dividend yield of 7.7%
A final dividend of 2 S cents/share was declared, bringing total FY12 dividends to 3 S cents/share. This was similar to FY11 and our forecast, and translates into a yield of 7.7%. MMH generated S$9.0m of net operating cashflows in FY12, versus S$8.7m in FY11. However, its cash and cash equivalents declined to S$6.0m (FY11: S$7.5m). Nevertheless, we continue to retain our 3 S cents DPS forecast for FY13, as MMH has guided for capex of just S$2.5m (FY12: S$6.5m) in FY13. Approximately 70% of this would be invested in ancillary equipment to enhance its productivity. We project MMH to generate S$6.8m and S$5.5m of free cashflows for FY13 and FY14, respectively.

Conditions still challenging, maintain HOLD
While there are positive signs from MMH’s 4QFY12 results, such as the YoY and QoQ boost in gross margins for both its Semiconductor Tooling and Custom Machining & Assembly divisions as well as a return to profitability for its Thailand plant, sentiment within the semiconductor industry remains cautious. Moreover cost pressures are also apparent given the increase in minimum wages in several of its operating locations in Asia. MMH is seeking to mitigate this via the implementation of more automated processes and controlling its headcount. We keep our FY13 projections and introduce our FY14 estimates. Maintain HOLD and S$0.325 fair value estimate, still based on 9x FY13F EPS.