SINGAPORE (Nov 2): Micro-Mechanics reported 1Q18 earnings of $4.51 million, down 12.9% from $5.17 million in 1Q17.

Revenue was 4.6% lower at $16.9 million from $17.7 million a year ago, bringing gross profit to $10.0 million, 6.8% lower than $10.8 million last year, the first contraction in eight quarter.

By geography, the weakest revenue growth was from Singapore and Japan. US bucked the trend with 8% YoY rise in revenue.

During the quarter, the group recorded a loss of $610,380 in foreign currency translation differences for its foreign operations, compared to a gain of $59,169 in the same period a year ago.

As at Sept 30, the group’s cash and cash equivalents stood at $23.9 million and no bank borrowings.

Chris Borch, CEO of Micro-Mechanics, says, “We are working tirelessly to improve our gross profit margin by focusing on various strategies to raise productivity and operational efficiency. The group is also continuously developing new materials and processes based on the long-term needs of our customers for greater precision, repeatability and reliability.”

Following this announcement, Phillip Capital is reiterating its “buy” call on Micro-mechanics with a lowered target price of $2.05, from $2.0 previously.

Overall, the group’s earnings came in below the research house’s expectations, hence FY19 earnings prediction were cut by 5%.

In a Thursday report, analyst Paul Chew says, “Micro-Mechanics will experience a cyclical slowdown in FY19. Higher margins can help offset the revenue weakness if US operations is able to undergo a turnaround faster than expected.”

The analyst also recalls that he US segment saw the fastest growth, reporting a $0.5 million fain in FY18, compared to a $0.6 million loss in FY17. Chew reckons that this geography can contribute the highest operating leverage.

Nonetheless, the group y maintains one of the highest gross margins and ROE in the semiconductor back-end industry. It also pays an attractive dividend yield of 5.6%.

As at 3.05pm, shares in Micro-Mechanics are trading 3 cents higher at $1.73, giving it a FY19 price-to-book ratio of 3.9 times.