On 29 August 2024, Micro-Mechanics Holdings Limited (“MMH”) have announced their full year results for FY2024. MMH seems to have found stability, with the quarter results relatively consistent to the previous quarters. Management have disclosed that the Group is cautiously optimistic of the continued recovery of the semiconductor sector, keeping in mind the ongoing and evolving macroeconomic and geopolitical challenges. Nonetheless, this will likely translate to a stronger financial performance given that the future comparative of FY2024 will be at a lower base.
Website: Financial Statements and Related Announcement::Full Yearly Results
Photo source: https://www.micro-mechanics.com/
Background
MMH designs, manufactures, and markets high precision parts and tools used in process-critical applications for the semiconductor and other high technology industries.
The Group’s strategy is to relentlessly pursue product and operational improvements while providing fast, effective, and local support to its customers worldwide.
In addition to designing and manufacturing a market-leading range of consumable tools and parts used in the assembly and testing of semiconductors, the Group also engages in the contract manufacturing of precision parts and tools used in process-critical applications for the semiconductor wafer-fabrication and other high-technology industries.
MMH became a public corporation and listed on the SGX-Sesdaq in Singapore in June 2003. On 22 July 2008, the listing and quotation of its shares was upgraded to the SGX Mainboard. Since its listing, the Group has received multiple awards in recognition of its high standards of corporate governance, quality of disclosure, transparency and investor relations.
Financial highlights
Revenue
| Metrics | Current | Previous |
|---|---|---|
| Revenue | -13.6% | -17.1% |
For the financial year ending 30 June 2024, revenue decreased by 13.6% to SGD57.9 million from SGD67.0 million in the previous financial year. The metric remains Unfavorable, though this quarter saw an improvement compared to the previous quarter, with revenue increasing by 9.7% to SGD14.9 million from the SGD13.6 million in the previous quarter. This is a good sign of stability.
Earnings per share
| Metrics | Current | Previous |
|---|---|---|
| Earnings per share | -17.8% | -23.4% |
Net profit financial year ending 30 June 2024 has decreased by 17.7% to SGD8.0 million. The decrease in net profit resulted in earnings per share to fall proportionately as well, with the basic and diluted earnings per share at SGD0.0578 as compared to SGD0.0703 in the previous financial year. The metric remains Unfavorable.
Operating Cash Flows
| Metrics | Current | Previous |
|---|---|---|
| Operating Cash Flows | -17.6% | -26.9% |
Cash flows from operations for the financial year ending 30 June 2024 decreased by 17.6% to SGD14.5 million from SGD17.7 million in the previous financial year. The decrease was mainly due to the reduction of profit for the financial year with no other significant changes noted. The metric remains Unfavorable.
Gearing ratio
| Metrics | Current | Previous |
|---|---|---|
| Gearing ratio | 19.0% | 19.0% |
Using the computation for Real Estate Investment Trusts (“REITs”), gearing ratio for MMH remains unchanged at 19.0% as of 30 June 2024, with total assets of SGD56.8 million and total liabilities of SGD10.7 million. This metric is Favorable as MMH is less reliant on external sources to fund operations.
Interest coverage
| Metrics | Current | Previous |
|---|---|---|
| Interest coverage | 23.3x | 23.9x |
The interest coverage stands at 23.3 times as of 30 June 2024, using profit before tax of SGD11.5 million and interest expense of SGD0.5 million. The finance costs mainly arose from their lease liabilities, as the Group has no external borrowings. The metric is Favorable.
Price-to-book ratio
| Metrics | Current | Previous |
|---|---|---|
| Price to Book Ratio | 4.59 | 5.13 |
Price-to-book (“P/B”) ratio stands at 4.59. This is computed using the Net Asset Value (“NAV”) of the Group as of 30 June 2024 of SGD0.331 per share, and the closing share price of SGD1.52 as of 9 September 2024. This is Unfavorable, as the high P/B ratio translates to paying a huge premium for MMH business. In the scenario of a liquidation, investors will only be getting back 22% of the price they have paid.
As of 9 September 2024, the Market Capitalization is approximately SGD211 million.
Dividend
| Year | Yield | Total |
|---|---|---|
| 2024 | 3.95% | SGD 0.060 |
| 2023 | 5.92% | SGD 0.090 |
| 2022 | 9.21% | SGD 0.140 |
| 2021 | 9.21% | SGD 0.140 |
| 2020 | 7.89% | SGD 0.120 |
With the final dividend payout in November 2024, the total dividend for the calendar year 2024 amounted to SGD0.060 per share. With a closing share price of SGD1.52 as of 9 September 2024, this translates to a dividend yield of 3.95%. For my benchmark, a general reasonable yield would be around 5.75%. MMH’s dividend yield is below my benchmark and is Unfavorable.
Website: Reasonable Dividend Yield 2024Q3 – 5.75%
If using dividend yield of 5.75% as a benchmark, based on the expected dividend of SGD0.060 there is potential for MMH to see its share price drop by 31.4% to SGD1.04. Investors will thus need to be mentally prepared that the share price might further fall.
| Yield | Share Price | Downside |
|---|---|---|
| Current (3.95%) | 1.52 | – |
| 5.75% | 1.04 | -31.4% |
| 6.75% | 0.89 | -41.5% |
It was worth noting however that the dividend payout has been more than their earnings per share throughout history. The dividend payout for 2024 is higher than the FY2024 earnings per share.
This is made possible given that depreciation expense, which is a non-cash expense, can be used to adjust the net profit into net profit before depreciation. The adjusted earnings per share will then be more than sufficient to cover the dividend payout. For FY2024, adjusted earnings per share is SGD0.105 per share which is sufficient to pay the expected dividend of SGD0.060 per share.
| Description | Amount |
|---|---|
| Net Profit | SGD 8,038,116 |
| Depreciation adjustment | SGD 6,509,666 |
| Adjusted net profit | SGD 14,547,782 |
| Number of shares | 139,031,881 |
| Adjusted earnings per share | SGD0.105 per share |
The issue with this is management signaling that there is not much capital expenditure required to replace their assets. Annual repair and maintenance will be sufficient to maintain their assets, which is cheaper than purchasing a new asset. Investors will need to take note if they are comfortable with the idea that their assets are able to last longer than the pre-determined useful lives as at reporting date.
Summary
| Metrics | Financials | Rating |
|---|---|---|
| Revenue | -13.6% | Unfavorable |
| Earnings per share | -17.8% | Unfavorable |
| Operating Cash Flows | -17.6% | Unfavorable |
| Gearing ratio | 19.0% | Favorable |
| Interest coverage | 23.3x | Favorable |
| Price to Book Ratio | 4.59 | Unfavorable |
| Overall | Neutral |
Overall, the metrics indicate that it remains Neutral to invest in MMH. The latest quarter have indicated that the fundamentals of MMH have stabilized at these levels. Investors will need to continue to monitor the market, as MMH is dependent on recovery of the semiconductor industry.
Disclaimer: Not financial advice. All data and information provided on this site is for informational purposes only.
Previous Post
Website: Micro-Mechanics Holdings Limited (SGX: 5DD): 2024 Third Quarter Result
