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PhillipCapital downgrades Micro-Mechanics despite 1Q21 record revenue and net profits

Jovi Ho
Jovi Ho • 2 min read
PhillipCapital downgrades Micro-Mechanics despite 1Q21 record revenue and net profits
“1Q21 revenue and net profit exceeded our expectations by 10% due to better-than-expected sales."
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With Micro-Mechanics Holdings’ record quarterly revenue of $18.1 million for 1QFY2021, PhillipCapital’s Head of Research Paul Chew raised FY2021E earnings by 9% in a Nov 2 note.

However, Chew has downgraded the company to “accumulate” with a raised target price of $2.93 from $2.50.

“1Q21 revenue and net profit exceeded our expectations by 10% due to better-than-expected sales,” says Chew. “Revenue rose 18% y-o-y to $18.1 million. PATMI was up 42% y-o-y to $4.7 million. Both were record highs.”

New projects from the US, as well as a resumption of work in the US and Malaysia following lockdowns in the June quarter, likely played a part, notes Chew.

Headquartered in Singapore, Micro-Mechanics Holdings (MMH) was founded by Christopher Reid Borch in 1983 and makes precision tools and parts for the semiconductor industry. Its products include wire cutter blades, rubber tips, clamps with inserts, and large wire equipment.


See: 'Hold' Micro-Mechanics on strong 4Q20 results: UOB Kay Hian

In September, Chew upgraded Micro Mechanics Holdings to ‘buy’ from ‘hold’ after 48% jump in profit after tax and minority interests (PATMI) in 4Q20. Chew raised its then target price to $2.50 from $1.60 previously.

See also: New growth driver for Micro Mechanics, dividends raised: PhillipCapital

Gross margins are at a two-year high, says Chew. “Following its lumpy capacity expansion in FY18, economies of scale have kicked in and revenue has increased to cover its additional fixed costs. New products also typically command higher margins.”

Operating cash flow has more than doubled at the company, with 1Q21 operating cash flow of $7.1 million more than double the $3.2 million achieved a year ago. Net cash was $25.5 million, up from $19 million a year ago.

That said, Chew also notes a spurt in capital expenditure, which spiked four times y-o-y to $2 million.

“MMH continues to guide for $4 to $5 million for FY21. Capex front-loading might have been due to a surge in demand from customers,” says Chew.

The cycle recovery remains nascent and growth this year should be further supported by new projects from its front-end semiconductor customer in the US, notes Chew.

“We believe the contribution could be almost 10% of revenue in FY21E… MMH provides attractive financial metrics, namely ROE of 33%, a net-cash position and a dividend yield of 4.9% remains attractive,” he says.

As at 1.57pm, shares in Micro-Mechanics were trading 1 cent lower or 0.4% down at $2.65.

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